KUALA LUMPUR (Sept 7): Elevated crude palm oil (CPO) prices will persist through the second half of the year, backed by tightening supply conditions that are set to boost plantation companies' earnings, according to Hong Leong Investment Bank (HLIB).
Every RM100 per tonne increase in average CPO price projection would lift the earnings of plantation companies under the research house’s coverage by 3%-8%, said HLIB, which maintained its 'overweight' call on the sector.
In a note to clients, HLIB noted that most plantation players have faced increasingly dry weather since June due to the ongoing El Niño event, with conditions appearing more pronounced in Indonesia than in Malaysia.
While it remains too early to gauge the exact productivity impact, the dry spell could hit yields with a lag, further tightening palm oil supply, it said.
Most active CPO futures hit a peak of RM5,018 per tonne on Aug 21 before easing 0.92% to RM4,972 per tonne at the time of writing on Monday, according to Bloomberg data.
In the downstream segment, HLIB said the operating environment remains challenging due to intense competition from Indonesian refiners.
However, near-term demand — particularly for oleochemicals — should remain supported by restocking activities driven by geopolitical uncertainties and the upcoming implementation of the European Union Deforestation Regulation, HLIB noted.
During the recently concluded results season, five out of six planters under HLIB’s coverage delivered results that were in line with expectations, while Johor Plantations Group Bhd (KL:JPG) reported earnings that fell short of expectations, as its fresh fruit bunch production missed the research house’s estimates.