Plantation Companies - DBS Research 2017-04-11: Temporary demand weakness

Plantation Companies - DBS Vickers 2017-04-11: Temporary demand weakness Plantation Companies BUMITAMA AGRI LTD. P8Z.SI FIRST RESOURCES LIMITED EB5.SI GOLDEN AGRI-RESOURCES LTD E5H.SI INDOFOOD AGRI RESOURCES LTD. 5JS.SI WILMAR INTERNATIONAL LIMITED F34.SI

Plantation Companies - Temporary demand weakness

  • Malaysia’s March 2017 Crude Palm Oil (CPO) output seasonally rose 16% m-o-m to 1.464m MT – higher than 1.307m MT forecast
  • This caused end-March inventory to expand 6% m-o- m to 1.554m MT – 15% higher than expected
  • Though rising 14% m-o-m to 1.266m MT, March 2017 exports were weaker than 1.306m MT expected
  • Buy on weakness: AALI, LSIP, TSH, BAL and FR



Stronger-than-expected March 2017 output. 

  • Malaysia’s palm oil production rose 16% m-o-m to 1.464m MT in March 2017 – ahead of 1.307m MT forecast. 
  • Higher-than-expected output was driven to a large extent by strong 38%, 27% and 19% m-o-m jumps in FFB yields in Selangor, Pahang and Sabah respectively – a month earlier than previously anticipated. FFB yields in Peninsular Malaysia expanded 20% m-o-m vs. 14% m- o-m in Sabah/Sarawak. 
  • Imputing March 2017 data; we now expect April 2017 palm oil output to increase 2% m-o-m (+14% y-o-y) to 1.487m MT.


Exports weighed by India’s demonetisation? 

  • Higher-than- expected output caused Malaysia’s palm oil inventory to swell 6% m-o-m to 1.554m MT by end-March 2017 – higher than 1.353m MT forecast – as exports grew by slower-than-expected 14% m-o-m. 
  • March 2017 exports were driven by shipments to Turkey (+118% m-o-m) and India (+28% m-o-m), partly offset by lower deliveries to the EU (-12% m-o-m). But compared to the same period last year, the drop in India’s imports (-48% y- o-y) caused much of the weakness. This may have represented a lagged impact from banknote demonetisation undertaken in November 2016; as we expect India’s 2017 palm oil demand to remain flat y-o-y. 
  • As at end-February 2017 (latest data), India’s vegetable oil inventory stood at 1.6 months of annual consumption vs. 1.9 months the year before. 
  • Malaysia’s April 2017 palm oil exports are forecast to remain flat at 1.264m MT – before rising to 1.532m MT in May on Ramadan demand.


Expect higher inventory in April 2017. 

  • March 2017 palm oil imports unexpectedly jumped 153% m-o-m to 102,000 MT. We suspect this may have been driven by strong production in Indonesia – as export taxes there were not due for a cut until April 2017. 
  • Assuming imports normalise to 38,000 MT in April 2017, we expect Malaysia’s palm oil inventory to expand towards 1.636m MT (+5% m-o-m) by month’s end.


Our recommendations. 

  • Current weakness in palm oil prices may likely continue this month – before higher seasonal demand kicks in during May 2017 and Indonesia’s biodiesel allocation are announced by end-April 2017. 
  • We maintain Malaysia’s production forecast of 19.4m MT this year; hence do not anticipate March 2017 production momentum to be maintained in subsequent months. 
  • For exposure, we recommend buying AALI, LSIP, TSH, BAL and FR on weakness.







Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2017-04-11
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.990 Same 0.990
BUY Maintain BUY 2.150 Same 2.150
NOT RATED Maintain NOT RATED 0.420 Same 0.420
HOLD Maintain HOLD 0.560 Same 0.560
HOLD Maintain HOLD 3.900 Same 3.900



Advertisement




MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......


ANALYSTS SAY


loading.......