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HLIB Research upgrades plantation sector, raises CPO forecast to RM2,400

KUALA LUMPUR (Nov 20): Hong Leong Investment Bank (HLIB) Research has upgraded the Plantation sector to “Overweight” and and raised its average crude palm oil (CPO) price assumptions for 2020-2021 by RM200/tonne to RM2,400/tonne.

In a note today, the research house raised its financial years 2020-2021 (FY20-21) core net profit forecasts for companies under its coverage as it believed the current positive crude palm oil (CPO) price sentiment will sustain into 2020.

HLIB said this is due to the supply constraints arising from potential palm production deficit in Malaysia and Indonesia, and lower soybean output in US) and more positive demand prospects (arising higher biodiesel mandate in Malaysia and Indonesia from 2020 onwards, and spreading African swine fever [ASF] outbreak).

In addition, it said the price spread between soybean oil and CPO has narrowed to ~US$75/tonne from historical 5-year average of US$100/tonne.

HLIB Research said it believed the price spread between the two will likely remain (if not narrow further), as ASF outbreak and biodiesel mandate in Malaysia and especially Indonesia will continue to drive palm oil consumption.

HLIB Research’s top picks are FGV Holdings Bhd (“Buy”; target price [TP]: RM1.42), Genting Plantations Bhd (“Buy”; TP: RM11.18), Hap Seng Plantations Holdings Bhd (“Buy”: TP: RM1.68), Kuala Lumpur Kepong Bhd (“Buy”: TP: RM24.37), and TSH Resources Bhd (“Buy”: TP: RM1.05).

Source: TheEdgeMarkets