Plantation Companies - DBS Research 2016-03-10: Near-term strength

Plantation Companies - DBS Research 2016-03-10: Near-term strength Plantation WILMAR INTERNATIONAL LIMITED F34.SI  FIRST RESOURCES LIMITED EB5.SI  INDOFOOD AGRI RESOURCES LTD 5JS.SI  BUMITAMA AGRI LTD P8Z.SI  GOLDEN AGRI-RESOURCES LTD E5H.SI 

Plantation Companies - Near-term strength 

  • Malaysian Feb 16 output of 1.043m MT was 7% lower than our forecast of 1.119m MT. 
  • But 15% m-o-m drop in exports kept end-Feb 16 inventory level of 2.169m MT within expectations. 
  • Output to recover in Mar 16; but so will exports; endMar 16 Malaysian palm oil stockpile may drop to 2.022m MT. 
  • CY16F CPO price of RM2,600 unchanged. Top picks: BAL, IFAR, WIL and TSH. 


Steeper-than-normal seasonal drop. 

  • Malaysia’s Feb 16 palm oil output of 1.043m MT (-18% m-o-m) was slightly lower than the 1.119m MT expected; as Sabah FFB yields dropped 20% m-o-m in a shorter month. 
  • Despite the 8% y-o-y drop in output, we maintain CY16F production at 19.549m MT (-2% y-o-y); as we expect harvesting to be back-loaded this year. Based on historical trends, Mar 16 output is forecast to recover towards 1.332m MT (+28% m-o-m). 

Inventory to deplete faster than previously expected. 

  • Lower Feb 16 production was matched with 15% m-o-m decline in exports to 1.085m MT; a 22% m-o-m drop in domestic consumption; and 84% jump in imports to 67k MT. This caused the inventory level to ease by a less steep 6% m-o-m to 2.169m MT – in line with forecast. 
  • The slump in exports was primarily a reflection of rising stockpile in India and lower demand from China post-CNY; offset by slightly higher demand from the EU. 
  • We had previously anticipated inventory to remain flat throughout the year – premised on a typical output pattern. But as the Feb 16 number suggests, 1H16 output now looks set to contribute only 42% of full-year production (vis-à-vis 45% normally). 
  • With a projected 15% m-o-m recovery in exports (to 1.252m MT), we expect Mar 16 stockpile to further deplete towards 2.022m MT (vs. our previous forecast of 2.234m MT). 
  • Yet, because of seasonally higher projected output, Mar 16 palm oil imports should ease towards 45k MT (-33% m-o-m). 

Near-term strength. 

  • Based on our revised forecasts, we expect Malaysia’s palm oil inventory to bottom at 1.302m MT in Aug 16 before progressively recovering back towards 2.170m MT by end-Dec 16. By the same token, we expect palm oil prices to maintain the current trajectory (barring volatilities in currencies and crude oil prices) in the near term. 
  • We should caution, however, that this price strength would be offset by lower yields and stronger MYR and IDR, which would adversely affect otherwise strong 1H16 top lines. 
  • Our top picks. We continue to prefer BAL, IFAR and TSH within our coverage for their favourable age profile and large maturing estates (relative to peers) – as exposure to Indonesia’s export taxes/levies is more than priced in. 
  • We also like Wilmar, which is the largest beneficiary of Indonesia’s biodiesel programme and has decent crushing margins in China. Wilmar is also a beneficiary of a sugar price recovery.





Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2016-03-10
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.85 Up 3.70
HOLD Maintain HOLD 1.85 Same 1.85
BUY Maintain BUY 0.52 Same 0.52
BUY Maintain BUY 0.96 Same 0.96
NOT RATED Maintain NOT RATED 0.38 Same 0.38


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