Palm oil industry’s earnings to rise in coming quarters

Investors are likely to continue to invest, as the stocks seem to be profit-making, says Yee


RESEARCH houses expect earnings boost in the coming quarters for the palm oil industry as futures closed above RM3,000 per tonne for the first time in three years recently.

Rakuten Trade Sdn Bhd head of research Kenny Yee said the Bursa plantation index is up by 11.85% year-to-date, spelling a positive growth for the industry.

“Many of the smaller cap plantation stocks have done even better, while there is still upside for the plantations stocks, namely among the larger caps.

“At the current rate, crude palm oil (CPO) price will likely see a boost in earnings in the coming quarters,” he told The Malaysian Reserve last Friday.

He added that stakeholders are expected to hold down on plantation stocks due to its positive projection for next year.

“Investors are likely to continue to invest, as the stocks seem to be profit-making,” Yee added.

Asked if CPO futures will increase in the near future, Yee said RM3,000 per tonne is already a good number.

“If it is maintained at the current level, plantation stocks will still perform very well,” he said.

Following the sentiment, concerns were brought up surrounding output from Malaysia — the second-biggest producer — prompting investors to buy more at year end.

According to the Malaysian Palm Oil Association, CPO production in Malaysia is estimated to have dropped 16.4% during the Dec 1-20 period.

The group of growers noted that output fell 20% in Peninsular Malaysia, 10.9% in Sabah and 7.4% in Sarawak, while the market was supported by firmer crude oil prices, which increased the tropical oil’s biofuel appeal.

Malaysia’s palm oil exports has capped the futures gains, however, having slumped 12.8% from a month earlier to 1.04 million tonnes during Dec 1-25, and cargo surveyor AmSpec Agri Malaysia said shipments declined 9.6%.

The cooking oil is headed for its best year since 2010 after surging 41.6% this year, a noted rise after sharp declines in the past two years.

RHB Retail Research, however, said CPO futures may trend higher on “bullish sentiment”.

It has advised traders to stick around, which is in line with its initial recommendation to have long positions above the RM2,175 level on Oct 9.

It also added that to lock in part of the profits, a trailing-stop can be set below the RM2,806 threshold.