Palmoil HQ Citigroup maintains ‘buy’ call on palm oil plantation stocks

Citigroup Investment Research has maintained a “buy” call on plantation stocks, and its top pick is IOI Corp Bhd.

The foreign research house valued IOI Corp’s shares at RM4.90, Kuala Lumpur Kepong Bhd at RM11.21, Sime Darby Bhd at RM8.17 and IJM Plantations Bhd at RM3.27.

In a note to investors recently, Citigroup’s analyst expressed positive outlook on the oil palm sector and assumes long-term crude palm oil (CPO) pricing to average at RM1,930 per tonne.

“We see little downside to CPO price at this juncture but potentially an upside to CPO prices if further crop losses occur to competing oils (soyabeans),” the analyst said.
“We continue to be positive on the sector because of slower production growth, firm and growing demand for palm oil (which does not decline during recession) and a declining stock ratio,” the analyst added.

Demand for palm oil from China and India is expected to go up given rising demand for processed food, driven by large population and low per capita consumption. Palm oil prices are also dependent on supply and demand of competing oilseeds like soyabeans.

The world’s supply of oilseed is expected to become tighter than usual as some producers had reacted to the price collapse since July 2008 by reducing investments (due to continuing tight credit) and inputs (such as fertiliser).