KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) anticipates positive growth for Malaysia's plantation sector in the third quarter of 2024 (3Q24), driven by a surge in crude palm oil (CPO) prices.
HLIB projects quarter-on-quarter (QoQ) earnings growth for Malaysian plantation companies in the upcoming reports, supported by a seasonal increase in production and stronger performance in the oleochemical sector.
"We raise our CPO price assumptions by RM150 to RM4,150 per metric ton in 2024 and RM200 to RM4,000 per metric ton in 2025, to reflect the recent uptrend in CPO price, and we believe this will remain at elevated levels (possibly until 1Q25), supported by weak palm output and robust near term demand," it said in a note.
The report highlighted that this price increase could benefit plantation companies significantly, estimating that each RM100 increase in the CPO price could boost earnings by 3.5 per cent to 15 per cent for companies within their coverage.
However, HLIB plans to adjust earnings forecasts and target prices (TPs) after the upcoming earnings season, as factors like export tax changes and a potential minimum wage hike come into play.
In the upcoming Q3 earnings, HLIB anticipates a mixed year-on-year (YoY) performance across the sector. Companies with a stronger presence in Malaysia, such as FGV Holdings Bhd, IOI Corp Bhd, and Hap Seng Plantations Bhd (HSP), are expected to report higher productivity levels than those in Indonesia due to improved labour availability and lower carryover impact from last year's El Nino.
Downstream segments may also see an uplift as European demand increases ahead of the European Union Deforestation Regulation (EUDR) enforcement.
HLIB Research remains "Neutral" on the sector for now, with IOI and HSP highlighted as top picks for investors seeking exposure, backed by HLIB's "Buy" ratings and target prices of RM4.22 for IOI and RM2.21 for HSP.