KUALA LUMPUR (May 3): Kenanga Research, which has maintained its "neutral" rating for plantation stocks, recommended Kuala Lumpur Kepong Bhd (KLK), TSH Resources Bhd, Hap Seng Plantations Holdings Bhd and PPB Group Bhd for investors seeking defensive long-term exposure.
“The plantation sector is in a transition. Trading at around book, the downturn in the sector has been priced in, while some in the sector should start seeing strong earnings come next year,” said Kenanga in a note on Wednesday (May 3).
However, it said, there is no strong upside catalyst that would prompt an upgrade from the research house’s current "neutral" assessment of the sector.
“Instead, we would suggest selective accumulation of [shares in] groups, such as KLK, which is enjoying the benefits of scale and cost savings from having bought over IJM Plantations Bhd a year ago, TSH, which is set to expand its planted area by 30% to 50% over time after having de-geared, Hap Seng Plantations with its huge cash surplus offering attractive sustainable dividend yields, and PPB, which should see its non-plantation earnings recovering,” Kenanga explained.
Kenanga has "outperform" calls on KLK, with a target price (TP) of RM27, TSH (TP: RM1.35), Hap Seng Plantations (RM2.30) and PPB (RM19.30).
KLK’s share price, which has fallen 27% over the past year, slipped 0.57% to RM20.98 at the time of writing on Wednesday. At that price, it had a market capitalisation of RM22.68 billion.
TSH was flat at RM1.02, with a market value of RM1.4 billion, while Hap Seng Plantations advanced 0.55% to RM1.82, giving it a market capitalisation of RM1.46 billion.
PPB, meanwhile, increased four sen or 0.24% to RM16.44 a share, translating into a market value of RM23.33 billion for the group.
According to Kenanga, the prospects of improving edible oil supply in 2023 are intact, despite poor ongoing soybean harvest in Argentina offsetting record harvest in Brazil.
However, it said, demand for edible oil is recovering rather strongly due to replenishment of inventories by buyers, as prices are now more affordable compared to a year ago, coupled with China’s recent reopening, as well as biodiesel demand, notably from the US, Indonesia and Brazil.
“Since both supply and demand are recovering almost in tandem, the overall supply-demand balance is likely to stay fragile, hence the range-bound crude palm oil (CPO) prices averaging at RM3,800 per metric tonne (mt) for 2023 into 2024,” Kenanga added.
Source: TheEdge - 4 May 2023
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