Regional Plantation - DBS Research 2017-06-15: Strong Exports Keep Inventory In Check

Regional Plantation - DBS Vickers 2017-06-15: Strong Exports Keep Inventory In Check FIRST RESOURCES LIMITED EB5.SI BUMITAMA AGRI LTD. P8Z.SI WILMAR INTERNATIONAL LIMITED F34.SI INDOFOOD AGRI RESOURCES LTD. 5JS.SI

Regional Plantation - Strong Exports Keep Inventory In Check

  • MPOB’s May 2017 data in line with our forecast.
  • Output reached 1.65m MT (+6.45% m-o-m), recovery trend continued in May 2017.
  • Strong exports kept inventory low at 1.56m MT (-2.6% m-o-m).
  • Reiterate BUY: AALI, LSIP, TSH, BAL and FR.



Strong output trend persisted in May 2017. 

  • Malaysia’s palm oil output rose 6.9% m-o-m to 1.65m MT in May 2017 – broadly in line with our forecast of 1.59m MT. 
  • The m-o-m sequential output uptrend was seen across the region, mainly in the states of Pahang, Perak and Sabah on the back of a yield recovery this year. The average Peninsular Malaysia and Sabah/Sarawak yield reached 1.46 MT/ ha in May 2017, the highest YTD. 
  • We expect the production pattern to normalise in the following month, with our June 2017 palm oil output forecast moderating to 1.57m MT.


Seasonal factors boost palm oil exports volume. 

  • The strong output in May 2017 was partially offset by higher demand. 
  • Malaysia’s palm oil exports gained 17.3% m-o-m to 1.51m MT in May 2017, largely in line with our estimate of 1.53m MT. The strong m-o-m exports growth was driven by Ramadan high demand seasonality. Palm oil exports to India jumped by 70% m-o-m to 274k MT in May 2017, while exports to China were weaker at 113.2k MT (-18% m-o-m).
  • We estimate that palm oil exports will hit 1.53m MT in June 2017, still on strong seasonal demand.


Inventory stayed low, thanks to strong exports. 

  • Palm oil inventory dropped 2.6% m-o-m to 1.55m MT, thanks to the strong export performance. May 2017 inventory also met our forecast of 1.52m MT. 
  • We expect the inventory level to remain tight at 1.5m-1.55m MT in June 2017.


Our picks. 

  • We reiterate our top picks of AALI, LSIP, TSH. 
  • We also like Bumitama Agri (BAL) and First Resources (FR) for their bright organic volume growth outlooks, coupled with undemanding valuations. 
  • While the pressure on palm oil prices may ease given the strong exports data, we believe the strong output outlook for the rest of the year and uncertainties over exports to China in 2H17 (in light of the latest developments in the soybean market) may limit the upside potential for palm oil prices this year.







William Simadiputra DBS Vickers | http://www.dbsvickers.com/ 2017-06-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.150 Same 2.150
BUY Maintain BUY 0.990 Same 0.990
HOLD Maintain HOLD 3.900 Same 3.900
HOLD Maintain HOLD 0.560 Same 0.560



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