Plantation Companies - DBS Research 2015-10-13: Range-bound

Plantation Companies - DBS Research 2015-10-13: Range-bound Plantation WILMAR INTERNATIONAL LIMITED F34.SI  FIRST RESOURCES LIMITED EB5.SI  INDOFOOD AGRI RESOURCES LTD. 5JS.SI  BUMITAMA AGRI LTD. P8Z.SI 

Plantation Companies - Range-bound 

  • Malaysia’s Sep-15 palm oil output was in line, while exports were 8% ahead of forecasts 
  • But weaker-than-expected domestic consumption; jump in imports raised stockpile to record high. 
  • Oct-15 output seen dropping 6% m-o-m to 1.847m MT, exports are likely to ease 1% m-o-m 
  • We expect palm oil prices to average RM2,287 in 4Q15. 
  • Top pick: Wilmar.


Seasonal low crop begins. 

  • Despite recent dry weather, Sep-15 Fresh Fruit Bunch (FFB) yield declined by a mere 3% m-o-m (vis-à-vis 7% m-o-m drop in Sep-14) – as this year’s seasonal peak in FFB yield was less pronounced. 
  • Nationwide, Sep-15 palm oil output eased 4% m-o-m to 1.959m MT – in line with our expectations. 
  • We expect Oct-15 palm oil output to start its seasonal low crop; and is forecast to drop 6% mo-m to 1.847m MT. 

Oct-15 exports likely to ease slightly. 

  • Malaysia’s Sep-15 palm oil exports rebounded 4% m-o-m to 1.678m MT – led by shipments to India. The seasonal recovery was less pronounced than the same period last year – as India’s edible oil inventory was already at record 2.420m MT at the beginning of Aug-15. 
  • With shipments for Divali requirements winding down, we expect Malaysia’s Oct-15 palm oil exports to ease 1% m-o-m to 1.656m MT – due in part to recent recovery in palm oil prices, a 5-ppt hike in Indian import duty on 18-Sep-15, as well as increased competition from Indonesian refined products. 

Oct-15 palm oil inventory to decline, but still at historical high. 

  • Malaysia’s end-Sep-15 palm oil stockpile of 2.628m MT (record high) was in line with our forecast. Reflecting the start of low crop season and assuming palm oil imports are cut by more than half, we expect palm oil stockpile to ease 3% m-o-m to 1.543m MT by end-Oct-15. This represents stock/usage (exports + domestic consumption) ratio of 12.4% - down from 12.8% in Sep-15. 

CPO prices to remain range-bound in Oct-15. 

  • Following the recent price recovery, we expect plantation counters to trade sideways in the near term; as 3QCY15 earnings and 4QCY15 guidance are assessed. Subject to severe downside to FFB yields, we believe planters’ 4QCY15 earnings remain at risk of lower ASP in local currencies – given recent strength in Ringgit and Rupiah. 
  • We continue to recommend Wilmar as we believe it is the main beneficiary of Indonesia’s B15 programme, rebuilding of China’s pig population, and recent recovery in sugar prices.




Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2015-10-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.70 Same 3.70
HOLD Maintain HOLD 1.69 Same 1.69
HOLD Maintain HOLD 0.47 Same 0.47
HOLD Maintain HOLD 0.88 Same 0.88


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......