Plantation stocks mixed amid severe floods

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PETALING JAYA (Dec 29): Shares of major oil palm growers were mixed today, amid the worst floods experienced in East Peninsular Malaysia in decades.

At 11.35am today, plantation heavyweight Felda Global Ventures Holdings Bhd (FGV) fell five sen or 2.26% to RM2.16 with 2.59 million shares done.

Shares of IOI Corporation Bhd (IOI Corp) declined 4 sen or 0.83% to RM4.76, with 467,500 shares traded.

Sime Darby Bhd dipped one sen or 0.11% to RM9.30 with 121,500 shares done.

In a note, CIMB Investment Bank analyst Ivy Ng said the floods would negatively affect the production of crude palm oil (CPO), as major plantation companies such as FGV, IOI Corp, Sime and KLK have large tracts of plantations in the East Coast of Peninsular Malaysia.

She said as a result, CPO output for December 14 may post a larger month-on-month (m-o-m) decline.

She said FGV currently has the highest proportion, with 67% of its estates located in the states that are hit by the floods.

Sime, IOI Corp and KLK have about 26% to 29% of their total palm oil estates located in these states, followed by Genting Plantations with 14%.

“The floods are expected to reduce palm oil output from these states, as harvesting, milling and transportation activities at the palm oil estates and related processing facilities located in affected areas will be disrupted,” she said.

“The four worst-hit states of Terengganu, Pahang, Kelantan and Perak accounted for 30% of Malaysia’s palm oil supply in 2013,” she added.

However, Ng said it was still early days to assess the full impact of flooding on palm oil output, as the research firm is still appraising the severity and length of the monsoon.

She noted that a group of palm oil millers in southern Peninsular Malaysia earlier last week estimated that output across Pahang, Johor and Malacca declined by 36% between December 1 and 20, from the same period a month earlier.

Ng said even though the dampener on CPO production would increase CPO prices, the lift might be insufficient to cushion the loss in production.

Furthermore, she said the uplift in CPO prices might come under pressure from other economic factors such as slower global growth, weak crude oil prices and higher soybean supplies.

Ng has maintained her “neutral” call on the sector.

However, other analysts do not believe the drop in share prices of oil palm growers is due to the floods in Peninsular Malaysia.

Kenanga Research analyst Alan Lim said the decline in share prices of these oil palm companies could be due to expectations that CPO prices were unlikely to hit the average RM2,500 per tonne in 2014, as targeted by industry observers.

“The floods will affect production but the price will also go up,” he said when contacted.

“As current CPO prices are between RM2,200 to RM2,300, we are likely to see the same trend in January.

“Usually, CPO prices in the first half of the year is higher than the second half but you are already expected to start on a weak threshold,” he added.

He said CPO prices might rally to an average RM2,500 per tonne sometime next year, but that might last for only a few weeks.  

RHB Research analyst Alvin Tai said the decline in share prices could also be due to the decline in crude oil prices.

Crude oil prices have declined 47% since June. Brent crude oil is now priced at US$59.86 per barrel.

“A lot of these companies also have plantations in Sabah but the flooding is in the East Coast of Peninsular Malaysia,” he said.

“The monsoon season is an annual event so I don’t think it will affect the market,” he added.