SINGAPORE (Jan 4): RHB is maintaining its “neutral” stance on the plantation sector with its top pick as Golden Agri for its diversified land bank, crude palm oil (CPO) price sensitivity and stock liquidity.

The stock has been given a target price of 46 cents.

In the research house’s Singapore Strategy report on Tuesday, RHB believes CPO prices could remain at high levels up to 1Q17 on the back of the strong US dollar as well as a still-weak CPO output due to the 24-month lagged impact of El Nino.

However, post 1Q17, it believes CPO prices may weaken to an average of MYR2,500 per tonne as an output recovery would coincide with the South American soybean harvest, which should put pressure on vegetable oil prices.

This due to observations of CPO prices shadowing soybean price movement of late, rising to new highs of MYR3,000 per tonne ($967 per tonne) at the end of Dec 2016 – which RHB thinks was in response to the surprise US election results in November.  

Demand from India is also expected to pick up once the short-term impact from the INR demonetisation “dies down”, but RHB maintains that China’s demand is likely to “remain anaemic” due to its abundance of soybean crops in addition to the soybean and rapeseed oil held in its government reserves.

The research house therefore continues to favour companies with a more diversified geographical land bank, which it believes would enable plantations to weather extreme climate conditions better than their peers.

“Our top pick of the Singaporean-listed planters is Golden Agri, which is trading at an inexpensive 2017F P/E of 15x, below the regional peer average of 19x,” concludes RHB.

As at 12:53pm, shares of Golden Agri are trading 1 cent higher at 42 cents.