KUALA LUMPUR (Oct 5): RHB Investment Bank Research (RHB IB) has maintained its “neutral” rating for the regional plantation sector and said its top picks are IOI Corp Bhd, Ta Ann Holdings Bhd, Sarawak Oil Palms Bhd and Golden Agri.

In a sector update on Thursday, the research house said investors should adopt a tactically positive trading strategy, premised on the confirmation of El Niño, and potentially escalating geopolitical risks related to the Russia-Ukraine war and the grain corridor.

“For the rest of 2023, we do not expect crude palm oil (CPO) prices to move past the RM4,000/tonne mark.

“However, in 2024, we expect CPO prices to range higher from current levels to RM4,000-RM4,500/tonne, once the impact of El Niño starts to affect productivity in the second half of 2024,” it said.

RHB IB said its base-case assumption is a moderate El Niño, and a resolution/solution for the grain corridor issue before end-October, which is when the harvesting period for Russia and Ukraine’s sunflower crops ends.

“We assume that Russia and Ukraine will be able to find ways to export their grains and oilseed products even without the grain corridor.

“Should these two assumptions be proven wrong, we will need to relook at our price assumptions,” it said.

The research house said it continues to believe higher CPO prices in 2024 will mean that the purer planters would be looked upon more positively than the integrated players, given the latter’s higher sensitivity to price movements.

RHB IB said the integrated players would provide a more stable earnings base and consistent dividend returns.

“In addition, we highlight that not all pure players would tend to benefit equally in terms of earnings, given the Indonesian tax structure which would make purer Malaysian planters more attractive than pure Indonesian planters.

“As such, for Indonesian exposure, we would prefer the integrated players, as they benefit from Indonesia’s tax structure in the form of higher margins.

“With our current tactically positive outlook, our top picks are unchanged, namely purer Malaysian-based planters like Ta Ann and Sarawak Oil Palms, and integrated players like IOI Corp and Golden Agri,” it said.