Affin Hwang Neutral On Plantations On Increased Palm Oil Production And Exports

Affin Hwang Neutral On Plantations On Increased Palm Oil Production And Exports - Affin Hwang Capital Research has maintained neutral on the plantation sector with a crude palm oil average selling price assumption of RM2,600 per metrinc tonne for 2018E.

The research firm noted that CPO production increased 7.5% on year to 1.57 million MT due to an improvement after the lagged effect of the El Nino phenomenon that affected production in 2016.

"We expect Malaysia’s CPO production to continue to improve from April onwards and we expect 2018E production to reach above the 20m MT level (2017: 19.92m MT) for the first time," it said in its Wednesday research report.

Affin Hwang Research added that palm oil exports improved in March by 23.7% to 1.57 million MT ahead of the initial planned reinstatement of export tax in early April.

It siad key buyers such as China, India and Pakistan increased their purchase of palm oil products, resulting in inventory declining to 2.32 million MT. 

"We believe the suspension of export tax on palm oil by the Malaysian Government has helped stimulate export demand and contributed to the decline in the stock level."

The research firm added that the Malaysian government has extended the suspension of export tax on palm oil by another month to end-April 2018, which should further boost demand for the products and lower inventory level ahead of Ramadhan as well as support CPO prices. 

"For plantation-sector exposure, FGV is our top pick as we believe earnings will grow on the back of higher FFB and CPO production as well as better contribution from the sugar business. We like FGV as we think management is focused on improving the core business, improving operational excellence and optimizing financial and human capital," it said.