Plantation - RHB Securities 2015-09-21: India Raises Import Taxes

BUMITAMA AGRI LTD. P8Z.SI  FIRST RESOURCES LIMITED EB5.SI  GOLDEN AGRI-RESOURCES LTD E5H.SI 

India Raises Import Taxes 

  • India has raised its import taxes on crude and refined vegetable oils by 5%-pts. 
  • While we expect an immediate negative reaction, we believe India’s long-term demand will still remain intact. This is due to the disappointing monsoon rains being experienced this season caused by El Nino, with the current rainfall deficit at 16%. 
  • Overweight Singapore/Indonesian plantation and maintain NEUTRAL on Malaysia. 
  • Top picks for the sector are First Resources and Genting Plantations. 


India raises import taxes... 

  • India has raised import taxes on crude and refined vegetable oils by 5%-pts, according to a media report. The tax on crude vegetable oils has been hiked to 12.5% (from 7.5%), while tax on refined oils has been raised to 20% (from 15%). 

…To protect own industries. 

  • This move is to protect local soybean farmers as well as the local edible oil refining industry. In the last 20 years, India's edible oil output has risen only about a 30%, while imports of vegetable oils have surged twelvefold to 14.4m tonnes to keep pace with growing consumption, making India the world's top buyer of cooking oils. 
  • According to Reuters, the cost of the edible oils imports are expected to rise about 40% to USD14bn this year (from USD10bn), driving several Indian mills out of business and forcing some farmers to switch to crops other than oilseeds such as soybeans. 

Immediate negative reaction expected... 

  • While we expect an immediate negative reaction to this news, we believe the Indian market has already expected this move for a while now and could have stocked up beforehand, based on the 15.8% YoY rise in Indian palm oil imports from Malaysia in YTD-Aug 2015. 
  • Given that there was no change to the differential of rates between crude and refined oil imports, there is unlikely to be a switching of imports between crude and refined oils. 

...But long-term demand strength still intact. 

  • We believe India will likely continue its large imports of palm oil after a short hiatus, as it may not have a choice. The Indian monsoon has been a disappointing one thus far. According to the Indian Economic Times, this year's monsoon could be one of the worst in nearly three decades, with the current rainfall deficit at 16%, likely due to the El Nino impact. 

Maintain sector call. 

  • No change to our Overweight on the Singaporean and Indonesian plantation stocks and Neutral on the Malaysian stocks.




Hoe Lee Leng RHB Securities | Alvin Tai CFA RHB Securities | http://www.rhbgroub.com/ pan> 2015-09-21
RHB Securities Analyst Report BUY Maintain BUY 1.44 Same 1.44
BUY Maintain BUY 2.54 Same 2.54
BUY Maintain BUY 0.48 Same 0.48


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