RHB Research maintains ‘positive’ stand on plantation sector

A worker checks the quality of crude palm oil (CPO) in a state CPO processing plant in Indonesia’s North Sumatra province in this file photo taken May 29, 2012. — Reuters pic
A worker checks the quality of crude palm oil (CPO) in a state CPO processing plant in Indonesia’s North Sumatra province in this file photo taken May 29, 2012. — Reuters pic

KUALA LUMPUR, Feb 5 — RHB Research has maintained a “positive” on the plantation sector due to higher palm oil prices and cheaper fertilisers.

The research house said the demand for biodiesel from Pertamina, the national oil corporation of Indonesia, should jump-start palm oil prices and the plantation sector.

“In the absence of Pertamina’s demand, palm oil prices will likely strengthen in the second quarter as Indonesia’s weak biodiesel production becomes evident.

“We believe the industry’s profitability will improve this year after hitting through last year,” the research firm said in a statement.

RHB Research said the market was awaiting Pertamina’s move on the second biodiesel tender with the results still unknown.

“After its failure in the first tender to secure three million tonnes for this year’s consumption, the market is not betting on the success of the second tender.

“Should Pertamina proves successful in securing the intended volume, it will likely drive palm oil prices significantly higher.        

“We believe the current industry weakness is unjustified because unlike the broad commodity sector, it is not hit by a glut. Valuations are also inexpensive and this represents a buying opportunity for investors,” the research house said.

Meanwhile, regional investment banking group, Maybank Kim Eng Research, said that it was maintaining its “neutral” call on the plantation sector as most of the funds it met in Singapore have little exposure on the plantation sector.

“Most funds take a trading-oriented approach to the sector unlike the Malaysian funds,” said the research house.

Fund managers were surprised to learn that valuations of plantation stocks in Malaysia are relatively higher than regional peers due to the growing pool of Shariah funds in Malaysia, which are structural in nature.

“Unlike Indonesian planters, selected Malaysian plantation stocks such as Genting Plantations, Sime Darby, KL Kepong and Sarawak Oil Palms have property development potential, given pockets of strategic estates held, it added in a separate note. — Bernama

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