Three plantation stocks to look out for in 4Q

SINGAPORE (Nov 22): UOB Kay Hian is maintaining its “overweight” on the palm plantation sector and favours Indonesia-based plantation companies over Malaysian ones as the pace of decline in production in Indonesia for 4Q16 is expected to be slower than in Malaysia. Bumitama Agri, First Resources and Golden Agri companies are its top picks.

In a Tuesday report, UOB says all companies under its coverage reported satisfactory results in 3Q16. Earnings increased q-o-q on the back of a pickup in production. Refining margins also improved q-o-q except for Wilmar International. However, their results remained subdued y-o-y in 9M16, mainly on weak production due to the lagged impact from the drought.

Looking ahead, UOB expects earnings recovery to carry on into 4Q16. During the recent management briefing, all companies indicated that FFB (Fresh Fruit Bunch) production is likely to peak in Oct 16, and then decline gradually in Nov-Dec 16. Meanwhile, Kalimantan-based companies such as Bumitama are likely to register a stronger production in 4Q16 as the delayed impact from drought is less severe in Kalimantan. 2H16 CPO production is likely to contribute about 60% of full-year production in 2016, adds UOB .

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