KUALA LUMPUR: Plantation sector's earnings should be stronger for the third quarter (Q3) 2023 given the seasonally higher fresh fruit bunch (FFB) output and flattish prices.
RHB Research said quarter-on-quarter (QoQ), FFB output was generally higher, given the peak output season while crude palm oil (CPO) prices were flattish.
FFB output for companies under the firm's coverage in Malaysia rose by an average of 24.8 per cent QoQ in Q4 2023, while spot CPO prices contracted 1.0 per cent QoQ in Q3 2023.
"While the peak season could have ended for the Indonesian planters, we believe the Malaysian players could still see at least one to two more months of stronger production in 2023.
"We continue to advocate the purer planters as beneficiaries of the price upcycle we expect to see from late Q2 2024 onwards, once El Nino impacts productivity.
"However, year-on-year (YoY), we should see a flattish earnings growth trend for planters in both Malaysia and Indonesia," it said in a note.
Based on its estimates of production output alone, given the seasonally stronger output, RHB Research said four players may underperform full-year forecasts based on FFB output.
They are Kuala Lumpur Kepong Bhd, First Resources Ltd, Bumitama Agri Ltd and Golden Agri-Resources.
In addition, RHB Research expects five planters to book numbers that are largely in line, while only one may chalk results that are stronger than projected (IOI Corporation Bhd).
"We make no changes to our RM3,900 per tonne CPO price assumption for 2023 and 2024.
"We continue to prefer Malaysian planters vs regional players, as Indonesia's tax structure makes Indonesian plantation companies' earnings less competitive vs that of their Malaysian counterparts.
"Stick to a Neutral sector call, with a tactically positive trading strategy," it added.