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Wednesday, 04 Jul, 2018

MIDF Research cuts Plantation sector to Neutral, lowers average CPO price to RM2,400 for 2018

KUALA LUMPUR (July 3): Palm oil inventory is expected to continue its downtrend for the month of June before reversing from July onwards, as production rise is expected to exceed total demand, said MIDF Amanah Investment Bank Bhd Research.

“Hence, inventory should stay above 2 million tonnes throughout 2H2018 and keep the crude palm oil price (CPO) upside limited,” MIDF said in a sector note today.

The research house added that despite the impact of weak soybean oil price and high inventory of palm oil, it does not expect CPO price to fall significantly from the current level.

“This is caused by strong Brent Crude Oil price, which in turn will lead to higher demand for palm oil from the biodiesel segment,” it explained.

Factoring in a lower soybean oil price and higher palm oil inventory in its model, MIDF has lowered its CPO price estimate to RM2,400 per tonne for 2018.

“For 2019, we expect CPO price to improve to RM2430 per tonne, as we believe soybean oil stocks should decline due to lagged effect of lower soybean stocks kicking in.

Overall, MIDF has downgraded the sector to Neutral. It’s stock picks for the sector include Kuala Lumpur Kepong Bhd (KLK) and Genting Plantations Bhd (GENP), of which it has Buy calls for both.

“We like KLK for: i) improved outlook for its manufacturing earnings due to low CPKO price, ii) earnings resiliency and iii) decent dividend yield of 2.6%.

“For GENP, we like the company as we expect its fresh fruit bunch growth of 13% yoy to be the strongest among planters under our coverage. This is due to new contribution from recently-acquired estate of 12,893 ha and 5000 ha coming to maturity in Indonesia,” MIDF said.

Source : The Edge Markets

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