Plantation sector

Beyond RM2,900/MT

• Crude palm oil prices (CPO) have now soared beyond RM2,900/MT level; the highest since January 2020 amid the improving demand prospects. The positive momentum is driven by the lingering trade spat between US and China which will see the latter shifting their purchases to CPO as opposed to soybean.

• On the local front, the export tax exemption since Jun-2020 till end-2020 will drive price to be competitive at international levels. We reckon the demand will be sustainable, premised to the recent strings of better-than-expected economic data from China with palm oil shipments from Malaysia during the period 1-15 September 2020 rose 12.4% MoM to 780,305 tonnes.

Trading Catalyst

• Kim Loong Resources Bhd (Kim Loong) is one of the leading plantation players in Malaysia, with five plantation estates of 15,275-ha across Johor, Sabah and Sarawak. The group owns 3 palm oil mills with combined processing capacity of 250MT/hr. Oil extraction rate over the past five years was above 21.0%; outperform the Malaysia industry average at 19.0-20.0%. Meanwhile, we note that prospective dividend yields are decent at 3.6% and 4.3% for FY21f and FY22f respectively.

Technical Outlook

• KMLOONG has been on the uptrend formation since mid-July 2020. Following the recent pullback, price has found some stability along the daily EMA60. A breakout above the RM1.40 may spur price towards the next resistance of RM1.49-1.51, with long term target at RM1.64. Support is pegged at around RM1.33, while cut loss is set at RM1.32.

Trading Catalyst

• As of end-2019, Sarawak Oil Palms (SOP) has a total of 79,872-ha of mature oil palms, representing 91.2% of total planted area, all located within Sarawak. Recall in 2QFY20, net profit surged 46.3x YoY to RM41.0m boosted by stronger sales and higher CPO prices. We like SOP as one of the plantation proxies against the sector peers with forward P/E trading at 14.8x and 13.0x vs. the sector average 35.8x and 30.8x for FY20 and FY21 respectively.

Technical Outlook

• Price has delivered a strong performance since mid-July 2020 before hitting a speed bump. We think that the recent pullback is a healthy move for price to be supported around the daily EMA60 level. Price has rebounded to close above the daily EAM9 level. The recovery may extend targeting the resistance of RM3.97-4.21, with long term target at RM4.50. Support is pegged at around RM3.37, while cut loss is set at RM3.36.

Source: Mplus Research - 17 Sept 2020