Brokers' take: RHB slashes target prices for plantation stocks amid ESG concerns

RHB has cut the agriculture plantation sector to "underweight", from "neutral" previously, as environmental, social and governance (ESG) concerns continue to weigh on share prices.

"We believe this devaluation of plantation stocks' price-to-earnings (P/E) ratios will likely be permanent, as more issues may crop up over time, and as investors become more ESG-aware and start pricing it into their investment decisions," the research house said in a report on Friday.

RHB has lowered its valuation targets for all the plantation stocks under its coverage. "We believe the sector should no longer trade at a premium to the market," it added.

Worst-hit in the round of devaluations is palm oil plantation owner Golden Agri-Resources E5H : E5H 0%, which saw its target price slashed by 26.7 per cent to S$0.22, from S$0.30 previously. RHB has also downgraded its recommendation for Golden Agri to "neutral" from "trading buy".

"While Golden Agri is also trading at single-digit P/Es, we believe its close correlation with and high sensitivity to crude palm oil (CPO) prices are likely to hamper its share price performance in the medium term," the research house said.

RHB added that it expects CPO prices to start declining in Q4 2021, and stay in a southward trend in H1 2022.

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Meanwhile, RHB is maintaining its "buy" calls on Wilmar International F34 and First Resources EB5, : EB5 0% but lowering their target prices by 10.9 per cent to S$5.75 and by 6.3 per cent to S$1.50, respectively.

It is also staying "neutral" on Bumitama Agri P8Z : P8Z 0%, and cutting its target price by 10 per cent to S$0.45.

"The negative news flow on the ESG front is likely to hamper any price recovery for the sector, and things may get worse before they get better," RHB said. "As more and more scrutiny is piled upon this sector, share prices and valuations will get dragged along with it."

Shares of Golden Agri, Wilmar, First Resources and Bumitama are all trading flat - at 23.5 Singapore cents, S$4.38, S$1.35 and S$0.46, respectively - as at 11.25am on Friday.

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