Corporate Updates

JP Morgan 'overweight' on plantations, sees 2-year upcycle

Publish date: Wed, 16 Feb 2022, 05:26 PM

JP Morgan 'overweight' on plantations, sees 2-year upcycle



KUALA LUMPUR (Feb 15): ASEAN plantation stocks may be back in vogue, says JP Morgan, noting that foreign investors who are less tied up with sustainability metrics are unable to ignore the strong crude palm oil (CPO) price rally.  

The bank upgraded its call on the ASEAN plantation sector to “overweight” and also upgraded its CPO price assumption on Tuesday (Feb 15), citing supply concerns amid years of reduction in new planting.

In a note, JP Morgan Malaysia equities research head Jeffrey Ng said rotation into inflation proxies (commodities) might persist amid “rising interest from non-ESG-bound foreign funds” and low domestic institutional holdings, coupled by prospects of US rate hikes.

This is on the back of consistent cuts in Indonesia’s new planting since 2012, as well as Malaysia’s replanting efforts, which could mean that near-term supply growth will decelerate.

“As we think the CPO upcycle might last over two years due to the reasons mentioned above, we think planters’ valuations have hit an inflection point,” Ng said.

 “The sustainability of this rotation hinges on market perception of the CPO price outlook,” he added.

CPO prices settled at a fresh record of RM5,657 per tonne on Tuesday, having scaled new highs this week on expectations of improved demand following India’s import tax cut. The commodity has risen by over 20% this year.

Ng forecasts CPO price to be at around RM5,000 in 2022 and 2023. The assumption is below spot, taking into consideration revenue taxes.

Ng upgraded to “overweight” calls for Sime Darby Plantation Bhd (target price: RM6.80), Kuala Lumpur Kepong Bhd (TP: RM30), and Genting Plantations Bhd (TP: RM12). He also raised IOI Corp Bhd to “neutral” (TP: RM4).

For valuation, the analyst switched to sum-of-parts of lands and downstream assets, from price-to-earnings ratio (PER), citing “the disconnect between share prices and the CPO price”.

“Planters are trading at single-digit PER, free cash flow yields are rising, the average dividend yield is circa 4%, and 2022 might see circa 35% profit growth,” said Ng.

“A rising tide may lift all boats, but we advise investors to pick planters that have well-defined ESG frameworks to avoid negative publicity risk,” he added.


#JPMorgan #SimeDarbyPlantation #GentingPlantations #IOICorp

24 people like this. Showing 7 of 7 comments


sime darby ok la

2022-02-26 10:27


plantation i don't know la

2022-02-26 10:32


most of the analyst predict cpo price around 4000 this year 2022 and 3500 next year 2023. this prediction do confused me coz from what i see cpo price hitting 6400 currently and i don't think the supply will come out from nowhere and crash the price to 3500. as for the demand side, i can only see increasing demand due to shortage of other vegetables oil in the market . that's why i don't know how the analyst predict the cpo price...pls enlighten me if u know how the analyst think

2022-02-26 10:37



2022-03-04 12:14


great news, time for me to learn more on plantation

2022-03-04 12:29


Nowadays, you can't even find those subsidized oil packet! Can't even find eggs in supermarket! I am afraid many restaurants and hawker stalls will close shop! This two ingredients are essential! Anyway, good riddance to EU for snubbing palm oil! Now, they are begging for palm oil! As for palm farmers, they are laughing all the way to the bank! For us consumers and food business owners, it's a huge struggle!

2022-03-04 12:33


Fortunately for me, i use very little oil! As i find using oil free air fryer better alternative!

2022-03-04 12:35

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