KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) has maintained its ‘neutral’ stance on the plantation sector as planters are expected to report a mixed set of performance for the second quarter of 2023 (2Q 2023).
The research house said the expectation was premised on mixed fresh fruit bunches (FFB) output growth and slightly lower crude palm oil (CPO) prices.
“Despite 2Q being a seasonally higher productivity quarter with Malaysia’s CPO production rising by 6.1 per cent quarter-on-quarter, three out of six planters under our coverage clocked in lower FFB output in 2Q 2023, namely FGV, Hap Seng Plantations and Kuala Lumpur Kepong,” it said in a note today.
HLIB opined that most planters will likely register a decline in their upstream earnings, mainly on the back of significantly lower CPO prices and higher production costs arising from minimum wage hikes, elevated fertiliser prices and higher diesel prices.
“Despite easing labour shortage in Malaysia estates, only four out of six planters under our coverage registered higher FFB production, while FGV and Sime Darby Plantation still registered year-on-year (y-o-y) declines in their 2Q 2023 FFB output at – 18.6 per cent and – -1.9 per cent y-o-y, respectively.
“This is due to less favourable weather conditions at FGV’s estates and below-potential harvester’s productivity,” it said.
The research house noted that year-to-date, CPO price averaged at RM3,916 per tonne, thus it has maintained its CPO price assumption of RM4,000 per tonne for 2023.
The arrival of El Nino, coupled with potentially stronger demand arising from palm oil’s improved price competitiveness, weak ringgit and low stock levels among major palm oil-consuming countries would support CPO prices during the second half of 2023, it noted.
“Moving into 2024, we maintain our projected CPO price of RM3,800 per tonne, based on the assumption that El Nino will turn out to be a moderate one and would dissipate by end-2023,” it added. – BERNAMA
