The Edge Markets (27/07/2020) KUALA LUMPUR (July 27): RHB Investment Bank Bhd maintained its “buy” call for Sarawak Oil Palms Bhd, and raised its target price for the company to RM4.20 from RM3.75 on the back of strong expected earnings and a decent valuation.
“With markets in a liquidity-driven rally, we believe cyclical sectors like plantations could be the next play, providing investors with a relatively safe haven, in terms of earnings,” RHB Investment Bank analyst Hoe Lee Leng said in a note today.
“We expect demand to continue to pick up as vaccine developments should instil confidence in businesses,” she added.
Hoe believes the recent rally in crude palm oil (CPO) prices to current levels of RM2,739/tonne could have predominantly been caused by the current liquidity in the market which has cut across all asset classes.
Although RHB Investment Bank expects CPO prices are likely to hold relatively steady in 3Q20 given CPO production only started ramping up in June, and pent-up demand is likely to continue until at least August or September in light of Deepavali in November, the research house forecasts a pullback in prices in 4Q20 due to the impact of the seasonal peak production, which will end during the quarter, and lower post-festive demand.
“On the whole, however, CPO prices in 2020 are expected to be 13% higher than that of 2019, while production for most planters, particularly those in Indonesia, will be higher.
“This means earnings will be stronger y-o-y in 2020, as well as in 2021, given our assumption of a higher RM2,500/tonne CPO price,” Hoe said, adding that security of earnings will give investors a reason to invest in the palm oil sector, given a reasonable valuation.
“We believe smaller cap planters like Sarawak Oil Palms will continue to perform well given its still decent valuation.
At 10.17am, Sarawak Oil Palms shares stood at RM3.75, two sen or 0.53% lower, valuing the palm oil plantation company at RM2.15 billion. Around 57,800 shares were transacted.
The counter reached a low of RM1.94 on Mach 23 this year, but has since rebounded and is merely 8.54% lower year-to-date from RM4.10.
Read more at https://www.theedgemarkets.com/article/rhb-investment-bank-keeps-buy-rating-sarawak-oil-palms-strong-sector-earnings