Friday 29 Mar 2024
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KUALA LUMPUR (Feb 11): Kenanga Investment Bank Bhd expects plantation companies' 4Q14 results to decline both on-year and on-quarter as CPO price in the final quarter was 13% lower at RM2,194 compared to RM2,511 per tonne in 4Q13.

“We think that only the planters with exceptionally high FFB growth (i.e. TSH Resources Bhd and IJM Plantations Bhd) might be able to negate the effect of lower CPO prices with better production growth,” the research house analyst Voon Yee Ping said in a note today.

“In our view, the lower earnings outlook should keep upside limited for planters’ share prices in the short-term,” he said.

Voon expects February 2015 crude palm oil (CPO) stocks, production and exports to continue the downward trend from January as domestic demand moderates after the Lunar New Year festive season and soybean oil prices remain competitive.

“... we think domestic demand is likely to moderate after the festive season, while exports could see further weakness due to competitive SBO prices,” he added.

Therefore, the research firm expects more “misses than hits” in the upcoming fourth quarter financial year 2014 (4Q14) corporate earnings.

Commenting on the January 2015 CPO data released by the Malaysian Palm Oil Board (MPOB) yesterday,  Voon  said the research house expected production to slip by another 3 percent to 1.13 million tonnes.

This would be in line with historical patterns seen in February after a sharp production decline last month, Voon said.

February inventory is also expected to decline a further 7 percent to 1.65 million tonnes, but price upside would be limited, Voon said.

“We expect total demand of 1.33 million tonnes to outpace total supply of 1.22 million tonnes in February 2015,” he added.

He said exports could slip a further 8%  to 1.09 million tonnes due to price competition from soybean oil with its declining prices and large export supply after a bumper harvest.

“Note that the January 2015 average crude palm oil (CPO) and soybean oil (SBO) price is US$638 per tonne (an increase of 2.1% month-on-month) and US$711 per tonne (an increase of 0.6% m-o-m) respectively, for a CPO discount of US$73 per tonne,” he said.

“However, the February month-to-date (MTD) average CPO and SBO prices are approximately USD637 per tonne (a decrease of 0.2% m-o-m) and US$695 per tonne (a decrease of 2.2% m-o-m) respectively, representing a narrowing CPO discount of US$58 per tonne,” he added.

Therefore, he said while lower inventories could be supportive to CPO prices in the near-term, price upside is limited due to the narrowing discount of CPO price versus SBO price.

Voon maintained Kenanga’s estimated CPO price of RM2,200 per tonne for 2015.

Yesterday, MPOB data showed CPO production dropped 14.96% to 1.16 million tonnes last month compared to 1.365 million tonnes in December 2014, as rainy season in East Malaysia hampered harvesting, compounding the effect of seasonally low output.

Palm oil inventories also declined on-month by 12.18% to 1.77 million tonnes in January, while exports dipped 22.07% to 1.18 million tonnes.

Voon said last month’s stock data was as expected, but CPO production and exports fell below the research firm’s expectation of 12% for both.

He said as expected, demand from India slowed significantly, falling 58% to 154 million tonnes, after buyers stocked up in December 2014 in anticipation of higher import duties.

Overall, Voon said exports slowed down with weaker demand from China, European Union, Pakistan and the U.S., but the lower exports were partly offset by a surge in domestic demand due to the upcoming Chinese New Year in mid-February.

 

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