RHB Group Research analyst Hoe Lee Leng is maintaining her “neutral” rating on the plantation sector, following expectations of high stock levels until the end of the year which may restrain crude palm oil (CPO) prices.
In her Nov 11 note, Hoe points out that Malaysia’s palm oil output rose by 2.4% m-o-m in October, while inventory rose by 3.7% m-om to 2.4 million tonnes, despite exports rising 5.7%.
“Although we understand that there has been a trickle of foreign workers coming into the country, it is not enough to alleviate the significant shortage of labour. As such, we expect Malaysia’s peak output season to remain lacklustre for the rest of the year,” says Hoe.
Exports will also continue to be affected by Indonesia’s tax-free holiday, which has been extended until end-2022. Although there could be a seasonal pick-up for the upcoming Lunar New Year period in the coming months, Hoe expects palm oil stock levels to remain above 2 million tonnes until year-end.
Given the recent price increase, the tax levy in Indonesia may be reapplied sooner than expected, which should be positive for Malaysian palm oil exports, Hoe adds.
Meanwhile, Russia has resumed its participation in the grains corridor initiative after a four day suspension, paving the way for continued exports of Ukrainian oilseeds. However, the deal expires on Nov 19 and Russia has not committed to renewing the deal unless it is able to ensure export of its own huge fertiliser output.
“Should this not be renewed, we would be in for another supply shock situation,” says Hoe.
For now, there is no change to RHB’s CPO average selling price assumptions for FY2022 and FY2023 at RM5,100 per tonne and RM3,900 per tonne respectively. She maintains Singapore-listed Wilmar International as one of her regional top picks, along with Malaysia-listed Kuala Lumpur Kepong (KLK) and IOI Corporation.
As at 1.34pm, shares in Wilmar are trading 6 cents higher or 1.5% up at $4.
