KUALA LUMPUR (Jan 18): Maybank Investment Banking Group (Maybank IBG) has maintained a “neutral” rating on the plantation sector, as Malaysia’s oil palm sector is saddled with structural issues.

The issues include falling yield, declining planted area, and the country’s palm oil losing price competitiveness vis-a-vis Indonesia due to the republic’s export tax structure, Maybank IBG Research said in a note on Wednesday.

While worker shortage is expected to normalise by the second quarter of 2023, these other issues affecting Malaysia’s oil palm sector need to be addressed, it said.

Among others, it said, the palm oil sector’s planted area has fallen by another 0.063 million hectare (ha) in 2022 to 5.67 million ha, its third consecutive year of decline.

“Peninsular Malaysia (-0.063 million ha) and Sabah (-0.016 million ha) led the fall while Sarawak bucked the trend with a small expansion (+0.016 million ha). Cumulatively, Malaysia lost 0.225 million ha in planted area between 2020 and 2022,” the research unit said.

Maybank IBG said the fall may be due to conversion of land to other agricultural crops, in part due to oil palm diseases; lack of workers and interest by the younger generation; environmental, social, and corporate governance considerations; and/or better profitability of other crops.

On lack of price competitiveness, it said while Malaysia’s domestic crude palm oil (CPO) average selling price (ASP) stood at RM5,088 per tonne in 2022, Indonesia’s domestic CPO ASP was merely RM3,753 per tonne, largely due to the republic’s hefty export taxes.

”The lower CPO ASP in Indonesia meant lower feedstock costs for downstream players in the country, which in turn boosted the margins of downstream players there,” it explained. 

It noted that the Malaysian Palm Oil Board has projected a CPO ASP of RM4,000 to RM4,200 per tonne in 2023.

This was premised on labour availability still being an issue, Indonesia’s production being questionable, Indonesia’s higher biodiesel mandate (from B30 to B35), concern over soybean supply risks in South America, lower sunflower seed production from Ukraine, higher demand from China’s re-opening, and export policy tightening by Indonesia.

Maybank IBG Research’s preferred buys in the region’s plantation sector are Kuala Lumpur Kepong Bhd, First Resources Ltd and Bumitama Agri Ltd.