KUALA LUMPUR (Feb 16): The plantation sector may likely register flattish to weaker quarter-on-quarter (q-o-q) upstream earnings due to flattish fresh fruit bunches (FFB) production growth and lower crude palm oil (CPO) prices, says Hong Leong Investment Bank (HLIB) research.  

The earnings performance at downstream segment, on the other hand, will likely remain subdued in 4Q2023 driven by weak near-term demand prospects (arising from weak global economic environment, the research house said in a sector update on Friday. 

The research house remains "neutral" on the plantation sector given the absence of a notable demand catalyst to support the earning growth. 

“We maintain 2024 to 2025 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne [as we expect El Nino’s impact on palm production and prices to kick in around mid-2024],” HLIB added. 

On stock recommendations, HLIB named Hap Seng Plantations Bhd (HSP) (buy; TP: RM2.06) and IOI Corporation Bhd (IOI) (buy; target price or TP: RM4.66) as its top picks.  

According to the research house, HSP’s 4Q2023 earnings will come in sequentially stronger, mainly on the back of seasonally stronger FFB output (increase 13.7%) and potentially stronger CPO sales volume (albeit partly weighed down by lower CPO price). 

At the time of writing, HSP shares traded up five sen or 2.81% to RM1.83, valuing the planters at RM1.46 billion.  

For IOI, the research said: Earning performance may likely be weighed down by weaker performance at the manufacturing segment due to stiff competition from Indonesian refiners, despite recording an 11.5% q-o-q increase in FFB production and lower CPO production.  

“During the quarter, planters with exposure in Indonesia fared weaker than those in Malaysia - and we believe this was due mainly to dry weather experienced in Indonesian estates earlier,” HLIB said. 

IOI shares are currently trading one sen or 0.25% higher to RM3.99, giving it market capitalisation of RM25.08 billion.

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