RHB Bank Singapore is keeping “neutral” on the plantation sector, planning to revise its 2024 crude palm oil (CPO) price assumption of RM3,500 ($1,007) per tonne depending on El Niño’s severity.
Analysts Hoe Lee Leng and Syahril Hanafiah note that CPO prices recovered in recent weeks on El Niño fears as well as movement of global commodities such as crude oil and soybean. With the rise in soybean oil prices, CPO is now at a larger US$697 per tonne discount to the former, making the latter more attractive.
This, coupled with below-historical-average inventory levels in major importers such as China, India and Bangladesh means that demand should come back more significantly in the short-term, the analysts point out.
That said, El Niño is still at the ‘alert stage’ and ‘advisory stage’ respectively, according to the Australian Bureau of Meteorology and US National Oceanic Atmospheric Association respectively.
“While El Niño conditions are now present, we highlight that it needs to remain at these levels for three to four consecutive months before it is confirmed. We still believe the El Niño needs to be a strong one for CPO prices to move by more than 20%, which would have a more significant impact on planters’ earnings. In terms of impact to productivity, we only expect this to be seen in 2024,” the analysts add.
RHB’s CPO price assumption of RM3,900 per tonne for 2023 remains unchanged.
See also: Test debug host entity
The analysts have “buy” calls on Wilmar International F34 and Golden Agri-Resources E5H with target prices of $4.40 and 31 cents respectively.
As at 12.11pm, shares in Wilmar and Golden Agri are trading at $3.71 and 24 cents respectively.
