KUALA LUMPUR, July 13 ― Despite the stronger export growth, research houses and investment banks are maintaining their “neutral” call on the plantation sector as the country recorded the fourth consecutive monthly rise in palm oil inventory with domestic consumption shrinking.

They also project the crude palm oil (CPO) price to hover between RM3,000 and RM4,000 per tonne.

Kenanga Research projects the crop to face headwinds such as price volatility, while the environmental, social and governance (ESG) factors will continue to weigh in on the sector.

It also said that the resolution of the withhold release order (WRO) by the United States’ (US) Customs and Border Protection would be an additional share price catalyst for the plantation companies on the local bourse, which would have a spillover effect on the sector.

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“Our integrated pick with defensive overall margin against the CPO price variability is Kuala Lumpur Kepong Bhd (KLK) with a target price (TP) of RM24.00. We also like Sime Darby Plantation Bhd (SIMEPLT) (TP: RM4.95) as its earnings are relatively shielded by forward sales,” it said.

Meanwhile, Public Investment Bank, which had maintained its neutral call on the sector, also noted the stronger pick-up in production to be downside risks to CPO prices in the second half of the year.

On the bright side, it said the ESG perception has not hampered merger and acquisition activities in the plantation industry.

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“Both KLK and IOI Corp have recently announced the acquisitions of a substantial stake in IJM Plantations and plantation in Sabah, respectively.

“Meanwhile, TSH Resources is disposing of 3,007-hectare plantation landbank in Sabah. This reflects the long-term commitment of the big plantation players who have more ambitious plans for their core business,” it said in a note today.

To recap, the nation’s palm oil inventories extended its uptrend in June 2021, rising by 2.8 per cent to record a nine-month high of 1.61 million tonnes.

 Nevertheless, this was lower than the consensus estimate of 1.69 million tonnes.

Meanwhile, the stock-to-usage ratio was unchanged at 8.0 per cent.

Exports jumped by 11.8 per cent month-on-month to a six-month high of 1.42 million tonnes, mainly driven by the growth in exports to China (+47.3 per cent), EU (+1.1 per cent) and Pakistan (+32.3 per cent), although this was partially offset by the fall in exports to India (-27.8 per cent) and the US (-45.8 per cent). ― Bernama