SINGAPORE (Apr 10): OCBC Investment Research is maintaining Golden-Agri Resources (GAR) at “hold” given the stock has traded close to the +1 s.d. level over the past five years, while crude palm oil (CPO) prices are at the -1 s.d. level.

After a 40% fall from early 2017 to end 2018, the share price of GAR is up about 30% YTD. CPO have also seen more interest and better price performance in the past few trading sessions. Month to date, GAR is up 12.5%, First Resources is up 9.3%, while Wilmar is up 5.4%.

In a Tuesday report, OCBC is forecasting crude palm oil to average RM2,300/mt ($760/mt) in 3Q19 and RM2,400/MT in 4Q19.

Analyst Low Pei Han says this represents a 13% upside from current levels to 4Q19 and is likely to support CPO related stocks but also notes that CPO prices are historically volatile and at the mercy of the weather, politics and regulatory policies such as Indonesia’s and Malaysia’s mandatory use of diesel containing locally produced biofuel.

As CPO prices are expected to recover and average RM2,400/mt in 4Q19, based on 0.65x P/B which is slightly higher than its five-year historical average of 0.61x, OCBC has derived a fair value estimate of 29 cents for GAR.

Over the longer term, the group’s ageing plantations may still weigh on the minds of fundamental investors, as well as uncertainties relating to palm oil demand from the EU.

As at 3.37pm, shares in GAR are down 1 cent at 31 cents or 25.8 times FY20F earnings.