The Malaysian planters’ upcoming quarterly   (4QCY14)  results are likely to disappoint due to the weak FFB production in the quarter, which was affected  by  the  delayed  impact  of  the  dry  weather  experienced  in 1QCY14 and the heavy floods on the East Coast of Peninsular Malaysia. We maintain our NEUTRAL call on the sector.

Expect poor results in 4QCY14 due to the weak FFB production during the quarter.  Those  companies  with refineries in Malaysia (particularly in Peninsular)  are  also  likely  to  post  weaker  earnings,  as  most  refineries are still recording negative margins.   

Eight  to  disappoint,  three  to  meet  expectations  and  one  to  beatforecast.  Based  purely  on  the  company’s  FFB  production  alone,  and assuming all other divisions meet expectations,  we estimate that of the 12 Malaysian planters that we cover (including the two timber stocks with significant  plantation  exposure),  eight  are  likely  to  come  in  below expectations,  three are likely to be in line and only one above (please refer  to  Figure  1).  The  eight  which  are  likely  to  disappoint  include Genting Plantations (GENP MK, BUY, TP: MYR11.60), KL Kepong (KLK MK, NEUTRAL, TP: MYR20.70), Sime Darby (SIME MK, NEUTRAL, TP: MYR8.75),  TH  Plantations  (THP  MK,  SELL,  TP:  MYR1.22),  TSH Resources  (TSH  MK,  NEUTRAL,  TP:  MYR2.28),  Sarawak  Oil  Palms (SOP)  (SOP  MK, BUY, TP:  MYR6.60), Jaya Tiasa (JT  MK, SELL, TP: MYR1.70) and Ta Ann (TAH MK, BUY, TP: MYR4.40). The three which are  likely  to  be  within  expectations  are  IOI  Corporation  (IOI  MK, NEUTRAL,  TP:  MYR4.40),  FGV  (FGV  MK,  NEUTRAL,  TP:  MYR2.20)and  TDM  Berhad  (TDM  MK,  NEUTRAL,  TP:  MYR0.85),  while  the  only company which is likely to exceed expectations is IJM Plantations (IJMP MK, NEUTRAL, TP: MYR3.22).

Seasonally weak production in 1QCY15. Though the dryness from 1Q 2014  continues  to  aggravate  the  seasonally  weak  production  this quarter, we doubt the effects would impact production from 2Q onwards.

Maintain  NEUTRAL.  Our  MYR2,500/tonne  price  assumption  for  2015 could  be  slightly  optimistic  and  may  be  subject  to  downward  revision. For  2016  we  are  more  upbeat  on  the  prospects,  on  positive fundamentals. Our Top Picks include Genting Plantations and SOP.

Source: RHB