MIDF Research has reiterated its positive call on the plantation sector while maintaining the mean crude palm oil (CPO) price at RM3,400 per metric tonne this year.

In a research statement today it said the earnings growth of all plantation stocks under its coverage, is underpinned by an increase in matured hectarage, and improved yield.

'The matured hectarage of all the companies under our coverage is estimated to increase by 9.4 per cent and 11.3 per cent in financial year 2011 and 2012 respectively,' it added in a research note today.

Imputing other factors, MIDF said this will translate into an earnings growth of 14.2 per cent and 9.2 per cent in financial year 2011 and 2012 respectively.

However, market expectation has revolved around recovering output and weakening export, which has led to many revising downward their average CPO price forecast for this year while downgrading their plantation sector recommendation.

'We believe that the recent retracement in the CPO price is mainly due to speculation rather than deteriorating fundamentals,' it said.

MIDF said based on the law of average, it is suggested that RM3,400 is not an unrealistic target.

The research house also expects for the rest of second quarter, the CPO price to be sustained by supply factors while demand remains stable.

'CPO output is unlikely to fully recover in the short-term due to the after effects of adverse weather condition,' it said.

However, MIDF said the pick-up output is expected to happen only in the second half 2011 as the La-Nina phenomena is expected to fizzle out and weather conditions normalise.

Meanwhile, its top pick up for the big cap plantations companies are Sime Darby Plantation Sdn Bhd and Kuala Lumpur Kepong Bhd, because of their sizeable plantation areas that would provide higher potential earnings growth.

For small cap plantation stocks, it continues to like TSH Resources Bhd because of the large immature areas and TH Plantations Bhd, due to the stable dividend payable.--Bernama