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Author: kltrader   |   Latest post: Mon, 29 Nov 2021, 10:25 AM

 

Malaysia Plantations – An ESG Mountain to Climb

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Macquarie Equities Research (MQ Research) resumes coverage on Malaysian plantations with a non-consensus underweight view as it expects crude palm oil (CPO) prices to decline more than consensus, and for structural environmental, social and governance (ESG) headwinds to cap upside due to reliance on foreign labour. In its report dated 15 October, MQ Research says its top pick is Kuala Lumpur Kepong (KLK) with an Outperform rating and lists its order of preference for Malaysian plantation stocks.

Resuming coverage of Malaysian Plantations on a negative note

MQ Research resumes Malaysian Plantation coverage with a non-consensus Underweight (UW) stance. In order of preference, KLK (Outperform (OP), Target Price (TP): RM25.30) > IOI Corporation (IOI) (Neutral (N), TP: RM3.70) > Sime Darby Plantation (SDPL) (Underperform (UP), TP: RM3.00) > Genting Plantation (GenP) (UP, TP: RM5.00). MQ Research prefers planters that are proactive in mergers and acquisitions (M&A), have higher downstream exposure, and good operational metrics (KLK). MQ Research dislikes planters with high upstream exposure and poor operational metrics (GenP). As long as negative ESG issues, which have graduated from mainly ‘E’ to ‘S’ headlines, remain unresolved, MQ Research believes share prices will be capped despite rises in the CPO price. Key downside catalyst for the sector is downturn in CPO prices and the emergence of any further negative ESG headlines.

Downturn in CPO Prices

While the market factors in lower CPO prices, MQ Research’s FY22E/23E CPO price assumptions are 6/10%% below the street, which MQ Research expects to result in further sell-down of the sector (CY21E-23E: RM3,800/RM3,000/RM2,600 per mt). MQ Research’s lower CPO assumptions are premised on (i) better labour supply amongst Malaysia planters; and (ii) slowing soy bean demand from China as hog prices normalise. CPO and share prices have diverged in CY21 year to date (YTD)  as the industry was overshadowed by ESG concerns. With valuations of Malaysian planters still above Indonesian peers and dividends insufficient to justify them as defensive play, MQ Research believes investors will choose Indonesia peers over Malaysia.

Reliance on Foreign Labour Still Risky

Any further emergence of negative labour headlines would deflate the sector even more. In the six months following SDPL’s WRO (Withhold Release Order), its share price declined 20% (vs. KLCI benchmark -8%). Planters are one of the most at-risk industries for labour abuse allegations, given (i) operations expand into rural areas, making them difficult to monitor; (ii) workers are mainly hired from other countries, increasing susceptibility to illegal hiring processes; and (iii) difficulty in automating processes. As these issues are unlikely to be solved soon, there is a likelihood more negative news emerges, which is a key derating catalyst. However, MQ Research still believes palm oil is not without its long-term redeeming qualities.

KLK Top Pick, GenP Least Preferred

After CPO futures touched RM5,000/mt, MQ Research believes it is a good time to sell. Even if the CPO price remains high, MQ Research expects any rallies in share prices to be short-lived. MQ Research’s top pick is integrated player KLK due to its earnings cushion from downstream operations and being an active M&A seeker. MQ Research’s least preferred is GenP, on large upstream earnings exposure and biodiesel-focused downstream operations. Upside risks: Higher dividend payout, La Niña onset, significant brownfield acquisitions.

Source: Macquarie Research - 18 Oct 2021

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Labels: KLK, IOICORP, SIMEPLT, GENP

Related Stocks

Chart Stock Name Last Change Volume 
KLK 20.14 -0.42 (2.04%) 869,800 
IOICORP 3.64 -0.11 (2.93%) 2,392,700 
SIMEPLT 3.68 -0.05 (1.34%) 3,414,700 
GENP 6.74 -0.09 (1.32%) 197,600 

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firehawk Underperform = UP !!!
18/10/2021 10:20 AM
calvintaneng Why Macquarie gave Underperformance for Sime darby Plant at Rm3.00?

Want to know the real reason why?

The Truth is this

Macquarie issued SimeDarby Plant Call Warrant to bet against Simedarby Plant

See

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3192188

THIS DIRTY MACQUARIE CANNOT BE TRUSTED

TRUST MACQUARIE? MIGHT AS WELL TRUST MONKEY TO TAKE CARE OF BANANAS!
18/10/2021 11:33 PM
calvintaneng ESG on Palm oil: Its implication, ramification and the unintended consequences of very high inflation & wide spread poverty, Calvin Tan Research

https://klse.i3investor.com/blogs/www.eaglevisioninvest.com/2021-10-18-story-h1592740865-ESG_on_Palm_oil_Its_implication_ramification_and_the_unintended_consequ.jsp
18/10/2021 11:37 PM
calvintaneng Touching on the anti-palm oil campaign, Datuk Zuraida said it had been running for decades and among the issues being disputed were the health aspect of palm products, environmental impact of oil palm cultivation and, most recently, labour-related issues

“These issues seem to be raised by the European Union (EU) and the United States (US) on purpose due to market competition and not on actual facts,” she said during the winding-up session for the 12th Malaysia Plan (12MP) in the Dewan Rakyat today.

https://klse.i3investor.com/blogs/www.eaglevisioninvest.com/2021-10-07-story-h1591935616-Plantation_Industries_and_Commodities_Ministry_to_take_aggressive_measu.jsp
18/10/2021 11:39 PM
stockraider Investment in palmoil listed companies got many tier offensive & defensive stategy mah!

Offensive

1. benefit from high oil price reap huge profit improvement, strong cash flow generation and strong and healthy balance sheet

2. Strong dividend will be forthcoming.

3. The govt of indonesia & msia have restricted new palmoil plantation development thus limited future plantation supply in the future which is good as it will lend support to its price loh!

Defensive

1. Land has a finite supply which is a good hedge against inflation

2. Currently plantation trade at a deep undervalue thus give big margin of safety for investor loh!

3. The current of hype of ESG trend which is unsustainable....give a good sound contrarian opportunity for a very strong rebound & upside for plantation going fwd loh!
19/10/2021 10:31 AM
stockraider REMEMBER THIS LOH!

"The current of hype of ESG trend which is unsustainable....give a good sound contrarian opportunity for a very strong rebound & upside for plantation going fwd loh!"
19/10/2021 10:35 AM
calvintaneng 50% of Supermarket products contain palm oil like maggee Mee and all instant noodles, all types of bread including gardenia bread, all biscuit made by Hup seng, Nestle kit Kat, apollo food, Oriental food, hwatai , ofi, and all others

Shampoo, soap, hair dye, toothpaste, lipsticks, infant formula , ice cream , cakes , margerine , cooking oil, creamer, Milo, chocolate milk, many many others will disappear from supermarket shelves or use substitute oils which are more expensive by 25% to 200%>

ESG

E = Empty
S = Shelves
G = Governance
19/10/2021 1:15 PM
stockraider The bread & butter is very important issue for the people....it cannot be ignore loh!

Palmoil keep the cost of living down mah!


Posted by calvintaneng > Oct 19, 2021 1:15 PM | Report Abuse

50% of Supermarket products contain palm oil like maggee Mee and all instant noodles, all types of bread including gardenia bread, all biscuit made by Hup seng, Nestle kit Kat, apollo food, Oriental food, hwatai , ofi, and all others

Shampoo, soap, hair dye, toothpaste, lipsticks, infant formula , ice cream , cakes , margerine , cooking oil, creamer, Milo, chocolate milk, many many others will disappear from supermarket shelves or use substitute oils which are more expensive by 25% to 200%>

ESG

E = Empty
S = Shelves
G = Governance
19/10/2021 7:19 PM
stockraider Listen u should be bullish about plantation mah!

Now already Rm 5000 record high mah!

If u look at the CPO future, it will be above Rm 4000 until Sept 2022 loh!

That means very strong mah! Super Profit coming loh!

Anything above Rm 2500 plantation already make good reasonable profit mah!

Very strong buy loh!
20/10/2021 11:45 AM
calvintaneng Latest response by Indonesia to ESG on palm oil

Indonesia will soon ban export of raw palm oil cpo

Indonesia will no longer sell non value add raw Cpo

In future all cpo in Indonesia will be going downstream for manufacture of cooking oil, shampoo, soaps, detergent, infant formula, Vit E and Vit A (beta carotene), hair dye, toothpaste and thousands of other value add products

That will make Malaysia a dominant player of palm oil export on world market

Without competition Prices will be good

Good for Malaysian palm oil companies notwithstanding ESG concern which backfires against consumers
20/10/2021 12:31 PM


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