HLBank Research Highlights
Plantation - 1Q22 Results Preview
Based on our estimates, most planters will likely report flattish/weaker performance on QoQ basis, as higher realised palm product prices will be weighed down by seasonally lower FFB output and higher fertiliser costs. Maintain 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne. Earnings forecasts, TPs and ratings of individual planters (to reflect high CPO price and production costs), on the other hand, will be reviewed in upcoming results season. Maintain Overweight stance on the sector. Top picks are FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).
Results preview. Plantation companies will start reporting their quarterly financial results starting from 20 May 2022.
QoQ: Seasonally weaker FFB output was partly mitigated by higher CPO prices. Planters will likely register flattish or weaker performance, due mainly to seasonally weaker FFB output (during the quarter, 6 out of 7 planters under our coverage clocked in lower FFB output) and higher fertiliser costs, but partly mitigated by higher realised palm product prices.
Zooming in on selected individual planters:
Genting Plantations (GENP). GENP will likely report flattish QoQ performance, as higher palm product prices and improved JV contribution will be offset by (i) higher fertiliser cost, (ii) a 15.2% QoQ decline in FFB output, and (iii) potentially weaker downstream performance (arising from high feedstock costs).
Sime Darby Plantation (SDPL). SDPL will likely report flattish QoQ performance in 1Q22, as higher palm product prices and sustained performance at downstream segment will likely be moderated by (i) higher fertiliser cost, and (ii) lower FFB output (-10.1%, due mainly to lower output from Malaysia estates, we believe).
TSH Resources. TSH’s core earnings will likely come in lower in 1Q22, as marginally higher FFB output (+0.8%) and better palm product prices will likely be offset by higher production cost and muted performance at cocoa segment.
YoY: Higher CPO price to to drive 1Q22 performance. Planters will likely register higher YoY upstream earnings in their upcoming results, on the back of significantly higher CPO price (>50%), which more than mitigated (i) higher production cost (arising mainly from higher fertiliser prices), and (ii) mixed FFB output (with 4 out of 7 planters under our coverage clocked in YoY growth in their FFB output). As for the integrated players, we believe volatile feedstock prices, coupled with elevated freight cost will likely hinder profitability at downstream segment.
Forecasts. YTD, CPO price averaged at ~RM6,300/tonne, and we expect palm oil prices will remain at elevated levels for a while, supported by supply disruption of major vegetable oil arising from less favourable weather conditions, geopolitical tension, and protracted fertiliser supply. We maintain our 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne. Earnings forecasts, TPs and ratings of individual planters (to reflect high CPO price and production costs), on the other hand, will be reviewed in upcoming results season.
Maintain OVERWEIGHT. We maintain our OVERWEIGHT stance on the sector, underpinned by (i) high near term CPO prices (which will in turn translate to good near term earnings prospects), (ii) easing ESG concerns, and (iii) decent valuations. Top picks remain FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).
Source: Hong Leong Investment Bank Research - 18 May 2022
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Discussions
1 person likes this. Showing 19 of 19 comments
Tq sifu Calvin for your extensive explanation on Tsh. Hope we can prosper together till next year on this gem. Cheers!!!
2022-05-19 00:05
Superdaddy
If anyone can buy and hold till next year the fantastic gain of 31 sen profit from Bulugan Regency Rm712 million lands sale will propel Tsh much much higher
2022-05-19 00:54
Correctloh Palmoil plantation is the best way to hide mah!
U r effectively involve with food production mah!
2022-05-19 08:41
In time of recession, safe your capital. Other than bank fixed deposits, plantations stocks is one of the safe havens for investments.
2022-05-19 09:19
he whole world is facing food shortage including cooking oils (including palm oil) and why worry as long as FCPO is in excess of RM6K/ton, and all individual oil palm smallholders & oil palm listed companies are reaping tons of profits which go directly into their pockets/banks, why worry about the movement of the share prices.
Dow Jone drops like bombs affecting tech. companies, cryptocurrencies and "Growth" companies where else oil palm list cos. are "Value" companies are holding very well and stable.
This is my opinion and for critical analysis.
2022-05-19 11:37
Correct mah!
One of your best plantation agst inflation is farmland/plantation mah!
2022-05-19 14:23
Correct mah!
One of the best protection agst inflation is farmland/plantation mah!
2022-05-19 14:25
Calvin, I think is time to move on from palm oil shares promoted since 2021. With some palm oil shares already rally 100% you have already proven your point and now time to let go. Waiting for you to promote next hidden gem.
2022-05-19 20:44
gladiator
Calvin say thank you for your kind words
still not yet for other stocks or just kiv (keep in view) first
I remember both Robert Kuok and Remisier King of Singapore Peter Lim did extremely well in their investment in palm oil when Cpo was only Rm3500 to Rm4000
Since Cpo now above Rm5000 to Rm7000 I think we hold longer to see more upside
Thank you
2022-05-19 20:51
FCPO night trading session just opened: Aug2022 Contract RM 5,967 -105( -1.7%)
2022-05-19 21:03
Cpo cannot fall too low as there is no sunflower oil, canola oil & soybean oil also not enough
It might be a knee jerk covering from Future shorts but Prices will hold due to scarcity
2022-05-19 21:25
FGV average CPO price Q121 rm3172, Q221 rm3268, Q321 3798, Q421 rm4194.... Q122rm5+++, eps???
2022-05-20 11:51
Good vibes loh!
Despite indo lift export ban which mean cpo price will fall......but the cpo price still shoot up mah!
2022-05-20 12:35
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
calvintaneng
Tsh resources
I think Hong Leong research just too cautious on Tsh results
These are our figures:
Ffb for Oct to Dec 2021 totalled 196,300 tonnes and Cpo was Rm4417 per ton
With 6 sen dividend from innoplant the reesult was
4.6 sen profit (Feb 2022)
This qtr result
Jan to March 2022 Ffb is 197,800 tonnes (up by 1,500 tonnes extra )
Plus Cpo average is Rm6,015 or up by 36%
Since Ffb has increased with price surge of 36% more value the cost of fertilizer cannot negate it's good overall results
Same 6 sen dividend from Innoplant another Rm6.3 Million dividend
so this coming qtr result Tsh should report a 6 sen profit (last qtr 4.6 sen) which will be an improvement
The Forward P/E of Tsh will improve to 5.91 (if there is no other impairment )
If sale of Sabah lands for Rm248 millions with assured profit of 7.56 sen is included then Tsh will shine like the sun this qtr
If not Aug 2022 results will report even higher superb profits due to this 7.56 sen plus April Ffb is 73,000 tonnes(just in) and with very high record Cpo prices
Calvin is grateful to Hong Leong Research Team for their being honest and bullish stand on palm oil nevertheless
Well done Hl IB research !!
2022-05-18 23:25