KUALA LUMPUR: RHB Investment Bank Bhd Research has upgraded the plantation sector to "Overweight" with expectations for a share price rally to match the rise in crude palm oil (CPO) prices.
"With CPO prices crossing RM5,000/ per tonne amidst a blend of fundamental and speculative factors, we believe share prices have yet to catch up and are due for a rerating," it said in a note today.
According to the firm share prices are still reflecting CPO prices of less than RM4,500/tonne.
Its top picks on the bourse are Johor Plantations Bhd, Sarawak Oil Palms andSD Guthrie Bhd.
RHB Research said it believes the run-up in CPO price, up 15 per cent in the last month, is due to four catalysts.
The spike in crude oil prices due to heightened geopolitical tensions; weather issues in South America which led to soybean oil prices going up 14 per cent in the last three weeks; the Thai Government's ban on palm oil exports until year-end to try to control rising prices of cooking oil, which affected sentiment and Donald Trump's win in the US general elections. It said in the 2016 election when Trump won, soybean and palm oil prices rallied 17 per cent and 28 per cent a few months before the election.
Post-election, prices rose further, by 10 per cent and 11 per cent to a peak of US$832/tonne and RM3,306/tonne from end-2016 to early 2017.
RHB Research believes prices
are unlikely to decline to below RM4,000/tonne in the near future as geopolitical risks remain very much in play, which would also keep crude oil prices elevated and speculative forces active.
In addition, once Trump's 2.0 policies are made known, prices may settle down and come off their highs.
RHB Research has raised itss CPO price assumptions for 2024 to RM4,100/tonne(from RM3,900), for 2025 to RM4,300/tonne (from RM3,800), and for 2026 to RM4,100/tonne (from RM3,800). "Overall, we expect prices to stay higher in the first half of 2025, trading at RM4,400-4,800/tonne before moderating in 2H25 to RM4,000-4,400/tonne during the seasonal peak.