KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research expects the crude palm oil (CPO) price will sustain above RM4,000 per tonne over the next few months, possibly until the first quarter of 2023 (Q1 2023).
It said the commodity could start trending down from Q2 2023 onwards on the back of better supply visibility for vegetable oils arising from easing labour shortage in Malaysia and the absence of weather anomalies, heightened risk of global recession, and inventories built up in key palm oil importing countries.
"Most planters within our coverage will likely register weaker performance, both quarter-on-quarter (q-o-q) and year-on-year (y-o-y) in their upcoming quarterly results, starting from Nov 22, 2022, on the back of lower palm oil prices," it said in a plantation sector update report.
The research outfit said q-o-q, the lower CPO price would drag upstream plantation earnings as seasonally higher fresh fruit bunches (FFB) output is offset by significantly lower palm product prices.
On y-o-y basis, most planters would likely post a decline in their upstream plantation earnings, on the back of lower FFB output and palm product prices, coupled with higher production costs, arising mainly from the full impact of minimum wage hike in Malaysia and higher fertiliser prices.
Planters with high exposure to upstream operations in Indonesia would likely fare better than those with high exposure in Malaysia, given the change in export levy structure and possibly higher FFB output.
As for the integrated players, volatile feedstock prices, coupled with elevated freight cost would likely hinder profitability at the downstream segment, it said.
"We maintain our 'Overweight' stance on the sector, supported by commendable valuations and high near-term CPO prices.
"For exposure, our top picks are Kuala Lumpur Kepong with a 'Buy' rating and target price (TP) of RM27.27 and IOI Corporation also with a 'Buy' recommendation and TP of RM4.65."
HLIB Research has maintained CPO price assumptions for 2022-24 of RM5,050 per tonne, RM4,000 per tonne and RM3,800 per tonne respectively.