RHB Group Research analysts Hoe Lee Leng and Syahril Hanafiah have maintained their “neutral” rating on the plantation sector, expecting earnings in 4QFY2022 to be in-line for most players based on its production output estimates.
In their Jan 31 report, the analysts expect 4QFY2022 earnings to drop q-o-q for Malaysian planters and be flattish for Indonesian players. In Malaysia, the fresh fruit bunches (FFB) output for the companies in its coverage fell by an average of 0.5% q-o-q in 4QFY2022, while spot crude palm oil (CPO) prices decreased by 1% q-o-q. This could translate to slightly lower q-o-q earnings.
In Indonesia, RHB estimates 4Q FFB output also fell by about 14% q-o-q, based on the trend in the previous quarter. However, CPO prices net of taxes rose 11.6% q-o-q due to the impact of the levy-free period until mid-November 2022, which could translate to flattish q-o-q earnings.
On a y-o-y basis, the earnings trend may also be different for Malaysian and Indonesian planters, the analysts highlight. For the Malaysian planters, although average FFB output rose 5% y-o-y in 4QFY2022, spot CPO prices dropped 24% y-oy.
In Indonesia, RHB estimates that FFB output rose about 11.6% y-o-y in 4QFY2022, while net CPO prices were relatively flat y-o-y due to the change in tax structure. As such, the analysts expect to see Malaysian planters post weaker y-o-y earnings while Indonesian planters post stronger y-o-y earnings in 4QFY2022.
The analysts believe margins to improve q-o-q in 4QFY2022 for players with downstream operations in Indonesia given the tax levy holiday. The tax differential between upstream and downstream products should widen, resulting in better downstream margins, they add.
That said, Malaysian downstream counterparts should see narrower q-o-q margins with the reinstatement of the levy as stiff competition resumes from Indonesia, the analysts point out.
Hoe and Syahril continue to like integrated players like Wilmar International while also seeing value in counters such as Bumitama Agri and Golden Agri-Resources.
RHB has “buy” calls on Wilmar, Bumitama Agri and Golden Agri with target prices of $5.40, 80 cents and 33 cents respectively.
As at 9.49am, shares in Wilmar, Bumitama Agri and Golden Agri are trading at $4.09, 62 cents and 25.5 cents respectively.
