KUALA LUMPUR: Research firms foresee another quarter of strong earnings growth for the plantation sector, supported by higher crude palm oil (CPO) average selling prices (ASPs).
The plantation industry’s core profit after tax and minority interests for the first quarter (1Q22) were higher year-on-year (y-o-y) for the ninth consecutive quarter, lifted by record CPO and palm kernel ASPs.
Maybank Investment Bank (IB) Research said strong earnings for 1Q22 were buoyed by historic high quarterly CPO and palm kernel ASPs and y-o-y output growth for selected growers.
For the upcoming 2Q22, it added that the planters’ results would be backed by CPO ASP of RM6,798 per tonne before easing off in the second half of this year from anticipated weakened CPO ASP and higher cost pressures.
The research house expects planters to face higher cost pressures due to rising fertiliser prices and new minimum wage impact in Malaysia.
“The recent spike in fertiliser prices, as high as 150% y-o-y for some growers, and the impact of new minimum wage hike in Malaysia will be more evident in the second half of this year.
“These cost pressures will be mitigated by seasonally higher output in the second half-year,” it said.
Furthermore, Maybank IB Research expects CPO price to trend lower half-on-half, with a view that CPO price has peaked in the first half of this year.
“We maintain our RM5,000-per-tonne CPO ASP forecast for 2022.
“As CPO price trends lower, integrated players such as Kuala Lumpur Kepong Bhd and IOI Corp Bhd typically exhibit greater earnings resilience compared to pure growers as the latters’ earnings are more sensitive to CPO price movement,” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research expects palm oil prices to remain at elevated levels for a while.
This will be supported by supply disruption of major vegetable oil arising from less favourable weather conditions, geopolitical tension and protracted fertiliser supply, it said.
“We maintain our 2022 to 2024 CPO price assumptions of RM5,500, RM4,500 and RM4,500 per tonne, respectively,” said the research house.
It is worth noting that CPO price moderated recently to RM6,700 per tonne and averaged at RM6,400 per tonne year-to-date after reaching an all-time high of RM8,076 in early March 2022.
That said, HLIB Research is keeping an “overweight” stance on the plantation sector, underpinned by high near-term CPO prices, which would translate to good near-term earnings prospects as well as easing environmental, social and governance concerns, and decent valuations.
The research house said of the eight planters under its coverage, six companies’ results for 1Q22 came in above expectations while the remaining two were within its expectations.
“During the quarter, all plantation players under our coverage registered significantly higher core earnings on y-o-y basis, boosted mainly by sharply higher palm product prices,” it said.