FEARING that crude palm oil (CPO) price has reached its peak, PublicInvest Research, which has been bullish of Malaysia’s plantation sector, has downgraded its outlook of the sector to “neutral” from “overweight”.

The research house now expects a correction for CPO price to be imminent.

“The situation of the global vegetable oil crisis is likely to improve in 2H 2022 as production picks up while demand is likely going to be soft in the short-term,” projected analyst Chong Hoe Leong in a plantation sector outlook.

“A potential upliftment of Indonesia’s palm oil ban should further ease the global vegetable tension.”

PublicInvest Research further expects edible oil prices which have been soaring since February due to geopolitical tensions and the recent ban on palm oil exports by Indonesia to correct by up to 20% if there is no further setback.

“We think the CPO prices have peaked and we expect to see correction in the next three months,” the research house pointed out.

Moreover, palm oil inventories in Malaysia jumped to the highest level in five months in April as production of the world’s second largest producer is rising. On this note, gradual production growth is expected towards October as oil palm trees enter high production season. This will help ease the tight inventory concern.

Nevertheless, PublicInvest Research has revised upwards CPO price forecast to RM5,000/metric tonne (MT) from RM4,300/MT in view of stronger-than-expected CPO price performance but we maintain its 2023’s forecast of RM3,800/MT.

“We think CPO price will remain strong in the 1H 2022. Thereafter, CPO prices could potentially fall to as low as RM4,000/MT towards year-end as we expect to see a pick-up in production when foreign workers start returning to Malaysia amid high production season coupled with cooling demand from major vegetable oil consuming countries,” it reckoned.

“The likelihood of Indonesia’s lifting its palm oil export ban will be negative news for the CPO price movements.”

At the point of writing, CPO futures traded at RM6,049/MT and \averaged at RM5,918/MT year-to-date (YTD).

“In view of the potential downside risk, we cut our target prices (TPs) across the plantation companies under our coverage by revising down our PER (price-to-earnings ratio) multiple based on -1 standard deviation,” suggested PublicInvest Research.

“We also downgrade Kuala Lumpur Kepong Bhd (TP: RM26.62), TSH Resources Bhd (TP: RM1.48) and Ta Ann Holdings Bhd (TP: RM5.16) as valuations look unattractive based on our new TPs.” – May 19, 2022

https://focusmalaysia.my/cpo-price-climax-reached-consolidation-likely-to-ensue-in-2h-2022/