• The plantation companies delivered strong 3Q20 earnings on the back of strong CPO prices achieved, which was above our expectations
• The palm-oil price has seen a V-shaped recovery this year and is currently settled at c.RM3,600/MT. We believe prices will remain supported going into 1H21, underpinned by tight stock levels, concerns about CPO production given the weather uncertainties and strong prices of other edible oils
• We keep our CPO ASP assumptions for 2020-21E at RM2,650-2,700/MT. Maintain NEUTRAL rating on the plantation sector, with IJMP and Ta Ann as our top picks

Strong 3Q20 earnings - above our expectations

Plantation companies’ 3Q20 results were broadly above our expectations (except for KLK) mainly due to higher CPO prices achieved. KLK’s results were below our expectations mainly due to lower CPO ASP achieved as it might have entered into forward sales too early at lower prices.

CPO price rose to YTD high of RM3,600/MT in early Dec20

Palm-oil prices reached a YTD high of RM3,600/MT in early Dec20, from a YTD low of RM2,000/MT in May20 and hitting the highest level since Mar11. We believe that the higher prices since May20 were partly attributable to the increase in demand for palm-oil products, concerns over the near-term lower-than-expected global production of palm-oil, tight stock levels for palm-oil products, an increase in the prices of other vegetable oils, improving sentiment and weather uncertainties.

Maintain our CPO ASP assumptions at RM2,650-2,700/MT for 2020-21E

The palm-oil price has seen a V-shaped recovery this year and we believe it will remain supported going into 1H21, underpinned by tight stock levels, concerns about CPO production given the weather uncertainties and strong prices of other edible oils. Looking at 2H21, we believe prices could potentially be under pressure as production picks up. We keep our CPO assumptions for 2020E at RM2,650- 2,700/MT (11M20 CPO ASP: RM2,635/MT) and 2021E at RM2,650/MT.

Maintain NEUTRAL; IJMP and Ta Ann are our top plantation sector picks

We have not made any earnings changes in this report. We expect plantation companies’ 2020E earnings to grow by 56.6% yoy mainly attributable to higher yoy CPO prices, and by 10.8% yoy in 2021E driven by higher CPO production and improvement in the downstream segment. Overall, we remain NEUTRAL on the plantation sector. Our top picks for the sector are IJM Plantations and Ta Ann.

Source: Affin Hwang Research - 7 Dec 2020