KUCHING: Genting Plantations Bhd’s (Genting Plantations) prospects remain uncertain, in line with the palm oil sector’s outlook, despite the resumption of its operations in Sabah.
According to Affin Hwang Investment Bank Bhd’s research house (Affin Hwang), after Sabah’s Movement Control Order (MCO) lift on oil palm plantations in the six districts, Genting Plantations’ estates and mills are finally back in operation.
“Genting Plantations is still in the midst of accessing their crop conditions. Genting Plantations’ fresh fruit bunches (FFB) production in the first three months 2020 (3M20) fell by 19 per cent year-on-year (y-o-y) to 449,200 metric tonnes (MT).
“We believe the decline is due to lower output from its Malaysian estates arising from dry weather conditions back in the first half 2019 (1H19).
“Currently, we expect Genting Plantations’s FFB production to increase by two to seven per cent in 2020 to 2022E from 2.2 million MT in 2019, as we believe production will pick-up towards 2Q and 3Q as the lagged effect of dry weather normalises,” the research team commented.
Based on its estimate, a one per cent drop in FFB production could potentially lower Genting Plantations’ earnings forecasts by circa one to two per cent.
All in, Affin Hwang retained its cautious view on the palm oil sector, in general. It noted that CPO prices have retreated since mid-January 2020 and are currently hovering around the RM2,000 to RM2,200 per MT levels due to global market uncertainty.
“We maintain our CPO price assumption for 2020 to 2022E at RM2,100 to RM2,450 per MT, given our more cautious stance on the demand outlook and a weak crude-oil price environment,” it said.
As for Genting Plantations’ property division, it noted that in compliance with the Malaysian government‘s directive for closure of all offices and non-essential services providers, all Genting Plantations’ property showrooms will also be temporarily closed during the MCO period.
“This, in our view, could potentially affect Genting Plantations’ property sales for this year,” it opined.
Affin Hwang reaffirmed its ‘sell’ recommendation on the stock.