KUALA LUMPUR: The weak crude palm oil (CPO) price environment will likely protract into the first quarter of next year, arising from bumper crop particularly in Indonesia and the absence of positive demand catalyst, said Hong Leong Investment Bank (HLIB).
“We remain less sanguine on the sector’s near term earnings growth prospects at least until the first quarter of next year, mainly on the current weak CPO price environment,” the research firm said in a note.
“While we have reflected the weaker-than-expected realised palm product prices year-to-date in our recent quarterly results, we are maintaining our average CPO price projection of RM2,500 per tonne for now pending a review with downward bias in our upcoming sector report,” it added.
Year-to-date, HLIB said CPO spot price has fallen by 28 per cent to RM1,775 per tonne, mainly on ample vegetable oil supplies in particularly, soybean and palm oil arising from the trade spat between United States and China, as well as bumper palm oil crop mainly from Indonesian estates.
It said the trade dispute has resulted in China switching its soybean import destination from US to other major soybean producing countries, resulting in lower soybean prices, hence dragging prices of palm oil products.
HLIB said during results for the third quarter of this year, all plantation companies missed expectations, mainly on the back of weaker-than-expected palm product prices.
“During the quarterly results review, we lowered our net profit forecasts and target prices for all companies under our coverage, but maintained our ratings,” it said.
HLIB maintains “neutral” stance on the sector.