“As we have no idea of knowing the extent of this intrusion and how long it will last, we are not revising up our CPO price assumptions as yet. However, we are upgrading our sector weighting to ‘neutral’, given the knock-on effect on commodity prices and, therefore, earnings and valuations of the planters.
“We admit our call for this year of 2022 has been wrong so far, given this unforeseen black swan event,” she adds.
RHB’s previous “underweight” call was based on the fact that environmental, social and governance (ESG) discounts will still continue to dampen the valuations of the sector.
While the firm continues to hold on to this belief, as CPO prices move higher, valuations of the planters would fall even below the ESG discounted levels. This would make it more attractive, says Hoe.
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She has a “buy” call for Wilmar International and “neutral” calls for First Resources, Bumitama Agri and Golden Agri.
Based on the CPO price assumption of RM4,300 per tonne, Hoe’s target prices for Wilmar, First Resources, Bumitama Agri and Golden Agri are $5.30, $1.60, 56 cents and 26 cents respectively.
As at 9.43am, shares in Wilmar, First Resources, Bumitama Agri and Golden Agri are trading at $4.42, $1.94, 73 cents and 29 cents respectively.
Photos: Bloomberg
