KUALA LUMPUR: Plantation companies are expected to post a stronger second half of 2024 (2H24) compared to 1H24, according to Hong Leong Investment Bank Bhd (HLIB Research).
The firm said this will be driven by the back seasonally higher fresh fruit bunches (FFB) production amid relatively stable palm product prices and crude palm oil (CPO) production cost at the upstream segment.
This includes restocking activities for downstream products ahead of European Union Deforestation Regulation (EUDR) implementation by the end of 2024.
"Prospects at the refining sub-segment, on the other hand, will likely remain subdued given overcapacity of refining facilities in Indonesia albeit recent improvement in refining margin somewhat indicated that the worst may be over," it said in a note.
HLIB Research also said most planters are still guided for positive FFB output growth in 2024, despite the mixed year-on-year (YoY) FFB output growth trend in the second quarter of 2024 (2Q24). This is supported mainly by continuing labour productivity improvement, more conducive weather condition, and seasonally higher cropping pattern in 2H24.
The firm also noted that CPO productioncost, on the other hand, is on track to trend lower in 2024, on the back of higherproductivity and lower fertiliser prices.
Meanwhile, HLIB Research said out of the eight planters under its coverage which reported their quarterly results in Aug 2024, five came in within expectations.
TSH Resources Bhd came in above, while IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK) missed expectations. It said key reasons for the results shortfall include lower-than-expected FFB output, and slower-than-expected recovery atdownstream segment.
Overall, HLIB Research has maintained a "Neutral" stance on the plantation sector, given the absence of notable demand catalyst.
Its top picks are IOI Corp and Hap Seng Plantations Bhd (HSP).
The firm also maintains its 2024 to 2025 CPO price assumptions of RM4,000 per metric tonne (mt) and RM3,800 per mt.