KUALA LUMPUR (Sept 19): While Bursa Malaysia’s indices tracked the decline in global equities on Monday (Sept 19), the Plantation Index was 0.35% higher at the noon market break as renewed production concerns overshadowed rising stockpiles seen in recent weeks.

After dipping into the red in the morning session, the Plantation Index traded largely in the green, rising 0.44% before paring some gains to trade up 0.18% at 2.45pm.

Gainers were led by FBM KLCI component stocks Sime Darby Plantation Bhd (up three sen or 0.69% to RM4.37) and IOI Corp Bhd (up three sen or 1.31% to RM3.91), as well as United Plantations Bhd (up 30 sen or 2.06% to RM14.88).

At the time of writing, the crude palm oil (CPO) active contract was 2.27% higher at RM3,742. CPO futures traded in the green across the board, with contracts from April to September 2023 above the RM4,000 mark, Bloomberg data showed.

Having traded sideways in the last two months amid rising stockpiles, industry observers are again seeing support on prices as nurseries struggle to keep up with demand for seedlings, which could risk a delay in industry recovery.

The seedlings shortfall could slow plantation, capping production growth and keeping palm oil prices elevated, industry officials said, as the world already grapples with lofty inflation, Reuters reported on Monday.

Demand for Malaysia's germinated seeds surged 30% year-on-year to nearly 38 million seeds in January to August 2022 — the point where some nurseries had to reject orders, while others had a waiting list of up to six months, the wire reported.

For Indonesia's sprouts, demand jumped nearly 24% over the same period, the report added.

Kenanga Research in a report dated Sept 14 maintained “overweight” on the sector, citing its “defensive qualities and a backdrop of global economic uncertainty”.

“Even at CPO prices of RM3,500-RM4,000/metric ton (MT), operating margins and cash flows are still good as production cost is estimated to hover at RM2,000-RM2,500/MT moving into 2023.

“Long-term earnings are underpinned by exposure to defensive essential day-to-day consumable products.

Also, stock valuation-wise, not only that price-to-book value is just above net traded assets (NTA), but the NTA is also solidly backed by land banks with manageable-to-low gearing levels, some even holding net cash,” the research house said.