Analysts maintain ‘neutral’ on plantations following govt replanting scheme

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KUALA LUMPUR (Sept 28): Research bank analysts have maintained a “neutral” call on the plantation sector following the government’s move to implement a RM100 million replanting scheme between Oct 1 and Dec 31.

CIMB analyst Ivy Ng Lee Fang said there was no surprise because the bank had previously indicated that the government might introduce the measure as part of its price stabilisation effort.

“But we are slightly disappointed that the target area for replanting of 83,000ha is only a tad higher than Malaysia’s historical 10-year average replanting rate of 80,000ha per annum,” she said in a note to clients.

Affin Hwang Investment Bank Bhd said it maintained its crude palm oil (CPO) average selling price assumption of RM2,150 per metric tonne (MT) for 2015 and a 12% increase to RM2,400/MT for 2016 to 2017.

“We see a number of positives, including a strengthening El Niño impacting 2016E-17E production, price stabilisation measures to be announced and pickup in global economic growth in 2016-17E.

“We maintain our sector ‘neutral’ rating and continue to advise investors to look for trading opportunities on market weakness,” it said in a note.

On Friday, Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas announced the two-phased incentive scheme for large-scale plantations.

Under phase one of the scheme, an incentive of RM1,500 per ha would be disbursed for an approved area of 33,000ha, while phase two would see an incentive payment of RM1,000 per ha for an approved area of 50,000ha.

Douglas was reported as saying that the scheme would reduce CPO production by 250,000 tonnes, which would help stabilise palm oil prices which hit lows of RM1,802 per tonne on Aug 27.

“This represents about 1% of the country’s 2014 total CPO output and 10% of the palm oil inventory as at end-Aug 15. We expect this news to be mildly positive for CPO prices in the medium term,” Ng said.

She added that the incentives offered of RM1,000 to RM1,500 per ha are attractive and represent approximately 7% to 10% of total replanting costs.

“Malaysian planters with old estates will benefit. However, planters like Felda Global Ventures Holdings Bhd (FGV) and Sime Darby Bhd with larger areas to replant (of around 10,000ha to 15,000ha per annum) could stand to benefit more in absolute terms.

“This means the incentives scheme could potentially reduce Sime Darby’s and FGV’s costs by RM10 million to RM22.5 million per annum.

“Other beneficiaries within our coverage are IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Hap Seng Plantations Holdings Bhd and Genting Plantations Bhd,” she said.

At 11.17am, FBMPalmoil dropped 50.35 points or 0.34% to 14,852.9 points.

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