KUALA LUMPUR: HLG Research remains long term positive on the plantation sector but cautious on the pace of recovery of crude palm oil (CPO) prices which had rebounded 83% from its low in November last year.

In its research note issued on April 24, its top picks were Asiatic with a Buy call and target price of RM5.20, IJM Plantations (Buy, TP: RM2.50) and Kulim (Buy, TP: RM8.30).

It said KL Kepong (Hold, RM11) was its preferred stock for large cap exposure and Kulim was its dividend yield and value pick.  

On April 23, CPO prices surged to RM2,620 per tonne for April contract on the back of Russia’s move to hike import tariff of tropical oils to 10% by June.

Despite Russia not being a major export destination for Malaysian palm oil, short term prices may continue to see strength due to stocking before the ruling comes into effect. Exports to Russia in the first quarter had fallen 62% to 15,492 tonnes.

HLG Research continued to caution that the upward trend may not be sustainable as plantations moved into peak production period of CPO and crude oil prices retreating as evident by higher inventory levels.

Other factors were that China and India’s restocking activities may slow after heightened replenishment in 1Q and another factor was that CPO producers would start to incur windfall tax on CPO priced above RM2,500 per tonne in Peninsular Malaysia.