Plantation stocks a defensive option

Analyst suggests export-oriented counters, O&G, healthcare and utilities sectors are the least affected by the change in govt


THE change in government will have little impact on the Malaysian palm oil sector as 93% of crude palm oil (CPO) production is exported yearly.

However, the national B20 biodiesel (20% of biodiesel with 80% of diesel) programme for the transportation sector could face delay as the country awaits the appointment of Cabinet ministers.

“It is unclear if the change in government will result in delays in the implementation of the biodiesel mandate (B20) and plans for the windfall fund from planters to be used to support the biodiesel programme,” CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said in a strategy note.

Other challenges for the sector include getting India to remove the restriction on imports of palm oil from Malaysia, foreign worker recruitment issues and wage pressures, she said.

The B20 programme is to be adopted throughout Peninsular Malaysia by June 2021 to support the demand for palm oil and maintain the price stability of the commodity.

The B20 programme follows the B10 programme (10% palm biodiesel and 90% petroleum diesel), which was mandated for the transportation sector on Feb 1, 2019, while the B7 programme (7% palm diesel and 93% petroleum diesel) was pushed for the industrial sector last July.

“In the face of significant uncertainty, we expect the dovish bias in monetary policy to strengthen and for Bank Negara Malaysia to reduce the Overnight Policy Rate by 25 basis points on March 3,” said Ng.

Ng recommends investors to stay defensive and go for export-oriented counters (agriculture, glove maker, technology, electronics manufacturing services), oil and gas (O&G), healthcare and utilities sectors, which are the least affected by the change in government.

“Sectors that are affected by domestic policies include the bank, consumer, construction and property sectors,” she said.

MIDF Research senior analyst Martin Foo Chuan Loong said the research firm maintains a ‘Neutral’ recommendation on the plantation sector and CPO price forecast of RM2,450 per metric tonne for the financial year 2020.

“Three out of nine plantation companies under our coverage have performed below our expectations. This was mainly attributable to lower average CPO price,” said Martin.

The Bursa Malaysia Plantation Index fell 1.33% or 90.26 to 6,719.48 yesterday. Sime Darby Plantation Bhd contributed the most to the index decline, decreasing 4.64% after posting a loss for the fourth quarter of 2019.

Batu Kawan Bhd provided the biggest boost to the index, advancing 2.45%. Harn Len Corp Bhd had the biggest gain, rising 16.5%.

For the current quarter, the index has fallen 13% heading for the biggest decline in at least 10 years. The index declined 7.62% in the past 52 weeks.

The plantation index is down 2.84% in the past five days and has fallen 5.94% in the past 30 days.