The Malaysian Reserve (26/04/2021) - SARAWAK Oil Palms Bhd’s financial performance for the next year is expected to be boosted by the tight supply of oils and fats, including crude palm oil (CPO), coupled with continuing demand.
RHB Investment Bank Bhd is raising its net profit projections for the firm’s financial year 2021 (FY21) and FY22 by 17% and 27% respectively due to the increased CPO prices forecast.
The research house had raised its CPO price projections for 2021 and 2022 to RM3,200 per tonne and RM2,800 per tonne respectively from RM2,650 and RM2,600.
“After imputing our revised CPO prices, we lift Sarawak Oil Palm’s FY21 and FY22 earnings forecast by 17% and 27%.
“As we believe the risks for prices are on the downside from here on, we prefer stocks that can perform under a lower-price environment.
“We like Sarawak Oil Palm for its pure Malaysia upstream exposure and its undemanding valuation at 10 times FY22F price-to-earnings, which is on the lower spectrum of its peer range of nine times to 14 times,” it said in a research report yesterday.
The latest forecasts from Oil World and the US Department of Agriculture (USDA) indicate that the supply of oils and fats and CPO is expected to be relatively tight in 2021, RHB said.
“Oil World data shows the 17 oils and fats, and 10 oilseeds complexes should see declines in stock and usage ratios in 2021, with the eight-vegetable oil complex staying flat on an annual comparison.
“The largest decline in stock and usage ratios in 2021 should come from the soybean, rapeseed and canola crops, which were affected by La Nina and exacerbated by China’s large appetite for soybean due to the feed meal requirements,” it said.
For 2022, RHB believes soybean and other oilseed prices will moderate along with CPO prices due to the increased planting activities.
“The US expects to plant up 5% more acreage next year and may raise this in 2022.
South American soybean planting will start in November-December 2021, with harvests in May-Jun 2022 and this may also likely rise.
“The USDA projects Brazil, the largest producer, to plant up 5% more soybeans in 2021-2022. With greater supply, soybean prices will likely moderate in 2022,” it added.
For CPO, the research house expects the stock and usage ratios will improve in 2022, estimating it to increase to 17% in 2022 from 16.2% in 2021.
RHB maintains its ‘Buy’ recommendation for Sarawak Oil Palm with a lower target price of RM4.65.
Yesterday, the planter’s share price rose six sen or 1.59% to RM3.84, raising its market capitalisation to RM2.19 billion.
Read more at https://themalaysianreserve.com/2021/04/26/sarawak-oil-palms-earnings-expected-to-be-high-on-cpo-prices/