KUALA LUMPUR (Dec 6 ) – Plantation stocks dominated the top losers' list in morning trades today after analysts downgraded the sector.
These include downward revisions for crude palm oil (CPO) prices and fresh fruit bunch (FFB) output after the sector reported weaker third quarter corporate earnings on lower CPO average selling prices (ASP) and higher cost.
The latest results also prompted some analysts to downgrade their earnings forecast for the industry.
"While "neutral" on a 12-month view, we had advocated a take-profit strategy at the start of the fourth quarter (4Q12). We estimate that Malaysia’s palm oil stockpile peaked in November 2012 at some 2.6 million tonnes and expect a steady recovery in CPO prices in the 1Q13 as stocks recede," Maybank Investment Bank analyst Ong Chee Ting wrote in a note on Thursday.
At 11.19 am, six out of the top 10 decliners were plantation entities. Far East Holdings Bhd declined 50 sen to RM6.80, Kulim (M) Bhd fell 16 sen to RM4.45, while Tradewinds (M) Bhd was down 11 sen to RM7.08.
Meanwhile, United Plantations Bhd fell 10 sen to RM24.40, Sarawak Oil Palms Bhd (SOP) lost seven sen to RM5.90 while Kretam Holdings Bhd was also down seven sen to RM2.03.
According to Ong, Maybank had slashed its plantation earnings forecast for companies under its coverage by between 13% and 40% in 2012 and a further reduction of 5% to 16% in the following year.
The earnings downgrades for names including Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and SOP, follow a downward revision in CPO prices to RM2,950 a tonne in 2012 from the previously estimated RM3,150 by Maybank, Ong said. In 2013, the research firm has, however, maintained its forecast at RM3,000, according to the analyst.
Ong said Maybank has also slashed its FFB output forecast by 2% to 7% in 2012 and 2013 for selected plantation firms.
"(We have also taken into account) higher cost of production in FY13 in the form of higher freight charges, as current price discounting will continue to be the new norm with the introduction in Malaysia of a new CPO export tax structure of 4.5% to 8.5%, effective January 1, 2013.
"Pure upstream players in Sabah and Sarawak were affected by higher discounting of CPO prices to offload their CPO stocks to nearby refiners, as stocks had been plentiful since September 2012," Ong said.
Over the last six months, Malaysian CPO prices had declined 34% to RM2,055 a tonne as at last Tuesday (December 4) from a high of RM3,134 a tonne on July 9, according to Bloomberg data.
"Weak CPO ASPs persisting into 4Q12 have wiped out all hopes of a quick rebound in profits for upstream players in the final quarter of the year. CPO prices have fallen another 14% since end-3Q12 and it is now down 35% year-to-date.
"Nonetheless, we believe the market has priced in this potential negative and look forward to a recovery in CPO prices and hence upstream earnings in 2013," Ong said.