Stock Highlights

Rally in CPO prices. Crude palm oil (CPO) prices have recently surged to a twoyear high of RM4,500/MT, amid ongoing supply constraints from the two key producer countries i.e. Indonesia and Malaysia. This rally, now up by over 20% in 2024, is also fueled by strong demand for edible oils. Additionally, higher crude oil prices and tensions in the Middle East have boosted palm oil's demand as a biofuel, lending further support to its price rally.

Poised for upbeat earnings. Given the recent rally in CPO price, we believe MKHOP could be a compelling play, underpinned by the favourable age profile and superior FFB yield of its plantation. Furthermore, its estates are mainly located in East Kalimantan, Indonesia and will therefore remain unaffected by the recent headwinds from Budget 2025 such as the hike in minimum wages and adjustment in export duties tax on CPO. Based on its latest quarterly disclosures, the production figures for 4QFY24 (ending Sept) are trending higher q-o-q, with CPO, FFB and palm kernel production up by 5.7%, 9.5% and 4.1%, respectively. On this basis, we believe MKHOP’s 4QFY24 results will remain satisfactory and meet our FY24 full-year earnings forecast of RM58m (per our IPO Note issued on 12 Apr).

Attractive valuation supported by share buyback. MKHOP is currently trading at just 10.0x our FY25 EPS, vs. larger Malaysian peers’ average of 18.9x PE. Our FY25 forecast was based on a conservative CPO price assumption (Indonesia domestic) of RM3,400/MT, suggesting there are further upsides should current CPO prices remain high around RM3,900-4,000/MT (Indonesia domestic). The stock has generally underperformed post-IPO, but has now caught back up amid active share buyback activities by management since Sept (6.3m shares bought back).

Triangle formation nearing breakout. The stock has recently formed a bullish W pattern and broke through the key resistance level at RM0.60. It has since pulled back to retest this level while consolidating in a triangle pattern. An ideal entry point lies between RM0.60 and RM0.62, with trend-based Fibonacci extensions setting the first target at RM0.66 and a second target at RM0.70. On the downside, a break below RM0.59 could lead to a correction towards RM0.57, where strong buying interest has historically supported the stock.