Regional Plantation: Navigating the turning point
- Palm oil price to improve to US$920 per MT in 2024 (2023 : US$843 per MT) and trending higher to US$950 per MT in 2025
- Recovering sunflower oil price (+15% y-o-y) to pave the recovery path for palm oil price and demand in 2024
- Wilmar is our top pick, and its recovering profitability outlook is poised to lead the industry earnings growth of 27% y-o-y in 2024 vs. -45% y-o-y in 2023
- Maintain BUY for WIL, FR, BAL and LSIP
Palm oil price to average US$920 per MT in 2024 and US$950 per MT in 2025.
We project palm oil price to average US$920 per MT in 2024 vs. US$843 per MT in 2023 and trending higher to US$950 per MT in 2025. We have revised down our palm oil price projection slightly for 2024 to account for the stronger dollar, and lower than expected sunflower oil supply which will impact palm oil demand in 1Q24. We believe palm oil price should recover gradually in 2024 with the weak production outlook and higher sunflower oil price.
Wilmar to lead earnings recovery in 2024.
Our new palm oil forecast has a minimal impact on FY24F/FY25F earnings since we believe the lower palm oil price will be offset by improving profitability trend, hence overall earnings growth prospects remain intact. We are maintaining our earnings forecast for Wilmar as its food products should propel margin expansion. Meanwhile, upstream palm oil stocks are still expected to churn positive net profit growth next year except Bumitama (BAL) which booked exceptionally strong production volume. Downside risks for palm stocks are limited as even if palm oil price stays at the 2023 low, palm oil companies are trading below decades mean PE. Positive earnings growth is the key share price driver for next year.
Maintain BUY with TP of WIL, BAL, FR and LSIP.
We maintain our BUY rating for Wilmar (WIL) on better profitability from its food products division, as well as improving palm oil refining margin. Meanwhile First Resources (FR) and Lonsum (LSIP)’s earnings are set to rebound from the 2023 low. We expect BAL’s earnings to stay above Rp2tr supported by its strong profitability trend. However, Astra Agro (AALI)’s earnings are set to decline next year due to cost pressures. Our Plantation universe has been affected by palm oil price volatility and operational challenges due to tighter compliance towards deforestation. Overall, we believe larger listed companies should benefit and outperform given better preparedness, amid a challenging environment that could hurt the smaller players.