REMAINING OPTIMISTIC: HLIB says despite its bullish view on the near-term CPO prices until the La Nina subsides, it will maintain its assumption of RM3,000 per tonne for this year.

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) has maintained its ‘neutral’ stand on the plantation sector.

In a research note yesterday, HLIB said this was because of the unattractive valuation, in particular, the bigger players, relative to their regional peers.

“Another reason is the less optimistic view on the downstream segment’s fortunes,” it said.

HLIB said despite its bullish view on the near-term crude palm oil (CPO) prices which would likely sustain at above RM3,100 per tonne until the La Nina subsided, it would maintain its assumption of RM3,000 per tonne for this year.

It said the risks to the sector would come from the economic slowdown in the US and eurozone.

“This will result in a sharp decline in both demand and prices of vegetable oils, including CPO.

“Other factors include the higher-than-expected global vegetable oil production and demand rationing by certain oil-consuming countries when vegetable oil price skyrockets to certain level,” it said.

Meanwhile, ECM Libra Investment Research (ECM Libra) and MIDF Research had also maintained ‘neutral’ calls on the sector.

ECM Libra said the stock levels in December continued to fall for the third consecutive month, closing at two million tonnes, down one per cent due to the seasonal weather factors.

“We expect inventory levels to fall below two million tonnes, going forward as production continues to drop in the coming months,” it said in a note.

MIDF Research said fall in output was due to lower production from major producing states, with Peninsular Malaysia recording the largest drop of 13.1 per cent to 770,373 metric tonnes.

HwangDBS Vickers Research said going into January 2012, the stock level should recede (forecast of 1.82 million tonnes) due to seasonal drop in fresh fruit bunch yields.

It expected after near-term strength, palm oil and soyabean oil prices to resume downward trajectories on the back of rising inventory level in the second half of the year.