Plantation - RHB Research 2015-10-13: Record Stockpile a Buying Opportunity

Plantation - RHB Research 2015-10-08: Possibly Better Prospects In 4Q And Beyond Plantation Sector FIRST RESOURCES LIMITED EB5.SI  BUMITAMA AGRI LTD P8Z.SI  GOLDEN AGRI-RESOURCES LTD E5H.SI 

Plantation - RHB Research 2015-10-13: Record Stockpile a Buying Opportunity 

  • While inventory hit a new high, we believe a decline is now imminent as the production down-cycle has already begun. We expect the El Nino drought impact on production to become very evident in the months ahead. 
  • Global dependence on palm is at a record high, which should amplify the effects of El Nino on edible oil price. Hence, any weakness in reaction to stockpile number will represent a buying opportunity. 

 Production peaks. 

  • Malaysia’s palm oil production started easing in September, falling by 4.5% MoM to 1.959m tonnes. West Malaysia led the decline, down 8.2% MoM, while Sabah was down 1.4% MoM. Only Sarawak managed to eke out a gain of 1.7%. We believe production would now continue its decline into February or March. Oil yield for the first nine months stood at 2.8 tonnes/ha vs 2.84 tonnes last year. 

 Exports commendable. 

  • Exports rose 4.4% to 1.678m tonnes, which was a commendable level and the highest September exports ever recorded. The increase was mainly driven by a rebound in shipments to India to 356,000 tonnes, while China’s imports remained flat. 

 Record stockpile. 

  • Stockpile rose by 5.5% MoM to a record high of 2.628m tonnes, marginally surpassing Dec 2012’s level by 799 tonnes. Other than the still-high production, factors contributing to this were an increase in imports and a drop in local consumption. Given the steepness of West Malaysia’s production decline and the likelihood of Sabah following suit soon, there is a high possibility that inventory has indeed reached its peak. 

 Soybean factor. 

  • Soybean crop in the US is now 69% harvested, with 89% of crops being rated good to excellent. As full harvest could be seen as early as end-October, this should remove the soybean overhang factor and allow palm oil price to resume its recovery. 

 Stock picks. 

  • First Resources continues to be our top sector pick. We also like Genting Plantations and Astra Agro Lestari.

Alvin Tai CFA RHB Securities | Hoe Lee Leng RHB Securities | Hariyanto Wijaya CFA, CFP, CA, CPA RHB Securities | http://www.rhbgroub.com/ 2015-10-08
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