KUALA LUMPUR: Most planters' third quarter (Q3) of 2021 results are expected to record further improvement, buoyed by higher palm product prices and fresh fruit bunches (FFB) output.
According to Hong Leong Investment Bank Bhd (HLIB), five out of eight companies under its coverage registered higher FFB output in Q3.
"We believe plantation players with larger exposure in Indonesia will post bigger increases in their realised CPO prices in Q3 2021, due to the revised CPO levy structure in Indonesia," HLIB said today.
Planters with high plantations exposure in Indonesia include Genting Plantations Bhd, IJM Plantations Bhd and TSH Resources Bhd.
HLIB believes most plantation players will report better Q3 performance as significantly higher CPO price (which increased by more than 60 per cent) will more than mitigate lower FFB output.
As for the integrated players, the firm said while higher feedstock costs will hurt margin at the downstream segment, this will likely be mitigated by improved demand for downstream products (following the gradual reopening of economies).
"Results preview aside, we raise our 2021-2023 CPO price assumptions to RM4,250/RM3,500/RM2,900 per tonne from RM3,800/RM2,900/RM2,800 per tonne previously.
"Earnings forecasts and target prices on individual planters (to reflect high CPO price, production cost and lower output assumptions) will be adjusted in the upcoming results season," it said.
HLIB has reiterated its "overweight" stance on the plantation sector, supported by good near-term earnings prospects arising from elevated CPO prices.
Its preferred "buys" are IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd and TSH Resources.