An official blog in I3investor to publish research reports provided by RHB Research team.
All materials published here are prepared by RHB Investment Bank Bhd. For latest offers on RHB Invest trading products and news, please refer to: http://www.rhbinvest.com
RHB Investment Bank Bhd Level 3A, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia
Top Picks: Kuala Lumpur Kepong (KLK), IOI and Wilmar. With Indonesia’s levy-free policy being potentially extended to the year-end, Malaysian stock levels may stay high, thereby pressurising CPO prices. This situation is worth monitoring, however, as Malaysia’s peak season has already started to disappoint. We anticipate lower QoQ earnings in the 3Q22reporting season, with most planters likely to book in-line results. Maintain NEUTRAL.
3Q earnings to decrease QoQ across the board. In Malaysia, although FFB output for the companies under our coverage rose by an average 14.9% QoQ, this should be offset by spot CPO prices which fell 38% QoQ. In Indonesia, we expect 3Q to also see a strong QoQ recovery in output, based on the trend in 2Q. However, CPO prices net of taxes also fell 18% QoQ (despite the impact of the levy-free period effective mid-July), which would mean lower QoQ earnings overall.
On a YoY basis, however, there may be a discrepancy in earnings between the Malaysian and Indonesian planters. For the Malaysian planters, 3Q22 earnings could also be lower YoY as spot CPO prices dropped by 10% YoY, while average FFB output was down 1.4% YoY. However, in Indonesia, given the change in the tax levy structure, net CPO prices were relatively flat YoY, while FFB output should be an improvement, which would translate to higher YoY earnings in 3Q22.
3Q22 likely to see mostly in-line earnings. Based on our estimates of production output alone (Figure 1), most companies could post earnings in line with our expectations in the upcoming 3Q results. However, there could be two that may book results that are below estimates based on FFB output, namely IOI and PP London Sumatra Indonesia. Nevertheless, as it is only the 1QFY23 for IOI, there could be a turnaround in output trends in the later quarters.
For those with downstream operations in Indonesia, we expect margins to improve in 2H22, since Indonesian Government has extended the tax levy holiday to end-October (from end-August), and is likely to extend this further to year-end. With this, Malaysian counterparts should see lower downstream margins in 2H22, given the resumption of the competitive advantage Indonesia has, with thischange.
Malaysia’s palm oil output rose by a mere 2.6% MoM in September, while inventory rose to 2.32m tonnes (+10.5% MoM) despite exports rising 9.3%. Stock levels in Malaysia could remain high until Indonesia’s tax-free holiday ends (at end-October). However, the disappointing peak output in Malaysia may alleviate the situation in the coming months, due to the unresolved labour shortages.
Maintain NEUTRAL on sector with no change to our MYR5,100/tonne and MYR3,900/tonne CPO ASP assumptions for 2022 and 2023, for now. We now have five BUY, seven NEUTRAL, and two SELL calls on the plantation stocks within our coverage, with our Top Picks being the integrated players, ie KLK, IOI and Wilmar.
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....