Plantation stocks dip on Feb's low palm oil inventory, output

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KUALA LUMPUR (March 11): Plantation stocks dipped today after release of a low February 2015 palm oil inventory data yesterday amid expectation of muted production growth this year.

At 11.14am, shares of Felda Global Ventures Holdings Bhd (FGVH) fell 2 sen or 0.91% to RM2.18, with 702,600 shares changing hands.

Similarly, IOI Corporation Bhd (IOI Corp) shed 2 sen or 0.44% to RM4.53, with 953,100 shares traded while Genting Plantations dropped 8 sen or 0.79% to RM10.02, with 132,300 shares done.

Hap Seng Plantations Holdings Bhd lost 3 sen or 1.15% to RM2.58 with 33,000 shares done while Kuala Lumpur Kepong Bhd (KLK) remained unchanged at RM22.22 with 158,200 shares traded.

Bucking the trend, Sime Darby Bhd gained 5 sen or 0.55% to RM9.22 with 1.27 million shares done.

Last month, Malaysia’s palm oil inventory fell to its lowest levels since February 2007 with 1.74 million tonnes as at end-February 2015.

Only 971,600 tonnes of palm oil were exported, due to weak shipments and low production.

RHB Research Institute Sdn Bhd said in a report today, shipment numbers were “unusually” weak due to the Chinese New Year holidays, which led to exports to China plunging to just 65,000 tonnes.

However, the research firm said inventory should remain relatively low this year due to very muted production growth.

RHB Research also said production fell 18.1% year-to-date (YTD) on a 12-month impact of an extremely dry first quarter of 2014 (1Q14), which it believes may not be over and may continue to impact production in March.

However, it said the drought in Indonesia, which occurred in the second half of 2014 (2H14), would have a more significant impact on this year’s second half production.

RHB Research maintained its “neutral” call on the sector, with “buy” calls for Bumitama Agri Ltd ( target price or TP: SG$1.48), PT Astra Agro Lestari Tbk (TP: IDR28,569) and Genting Plantations (TP: RM11.40).

CIMB Investment Bank Bhd analyst Ivy Ng said the research firm was “surprised” by the sharp fall in production from estates in Sabah, the largest producer and highest yielding palm oil state in Malaysia.

The research firm said that Sabah estates recorded a decline of 22% month-on-month (m-o-m) in fresh fruit bunches (FFB) yield, the lowest monthly level since 2001.

“We suspect that it could be due to a combination of erratic weather, biological tree stress, lack of harvesters for tall palms and ageing estates,” she said.

Ng viewed the low February 2015 inventory slightly negatively as the palm oil inventory was larger than expected.

However, Malaysia’s palm oil output is likely to trend higher in the coming months due to weather conditions and seasonal factors which may curb the uptrend in CPO prices, she said.

For March 2015, Ng projects palm oil stocks to fall 1% m-o-m to 1.72 million tonnes while maintaining the average CPO price forecast of RM2,460 per tonne.