Regional Plantation - DBS Research 2018-11-13: Improving Exports To China

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BUMITAMA AGRI LTD. (SGX:P8Z) FIRST RESOURCES LIMITED (SGX:EB5) GOLDEN AGRI-RESOURCES LTD (SGX:E5H) WILMAR INTERNATIONAL LIMITED (SGX:F34) INDOFOOD AGRI RESOURCES LTD. (SGX:5JS)

Regional Plantation - Improving Exports To China

• Stockpile inched up to 2.7m MT, slightly above our forecast but below consensus.
• Output below expectations, peak harvest deferred to 4Q18.
• Export flat m-o-m at 1.6m MT; exports to China nearly doubled m-o-m.
• AALI, LSIP, FR, BAL, WIL and TSH remain our top picks in the plantation space.

Inventory inched up m-o-m to 2.7m MT.

• Stockpile inched up to 2.7m MT (+24% y-o-y, +8% m-o-m) slightly above our forecast (but below consensus on flat m-o-m export growth), even as output came in lower than our estimate.
• We expect the stockpile to stay at the current levels until the end of the year, unless there is weaker-than-expected peak crop this year.

Output weakened y-o-y, peak harvest deferred to 4Q18.

• CPO output reached 1.96m MT (-2% y-o-y, +6% m-o-m), below our expectation due to the deferment of peak harvest of the year to 4Q18.
• We expect output to average at 2.1m MT in 4Q18 before normalising in 1Q19.

Exports to China nearly doubled m-o-m.

• Total export volume plateaued q-o-q at 1.6m MT (+2% y-o-y), led by China. Exports to China doubled m-o-m to 213k MT (+10% y-o-y).
• Our channel checks with some buyers reveals that China needs to plug its supply gap for soybean oil amid efforts to shift its purchases away from US imports. However, exports to India slid post-Deepavali to 99.2k MT (-40% y-o-y, -56% m-o-m).

Low price a potential catalyst for CPO demand.

• Strong output could dampen CPO prices in the short term, as Indonesia and Malaysia estates are entering their peak-crop harvest. However, we are starting to see new CPO demand arising from Indonesia’s B20 biodiesel mandate, as we have noticed the chartering of tugs and barges for transporting CPO across the country for biodiesel-refining purposes.
• Meanwhile, we see the potential for higher demand from China amid the faltering soy oil output momentum on the back of curtailed soybean imports due to the ongoing China-US trade war.
• We keep our 2019 CPO price assumptions, and Astra Agro (AALI), London Sumatra (LSIP), Bumitama Agri Resources (SGX:P8Z), First Resources (SGX:EB5), Wilmar International (SGX:F34) and TSH Resources (TSH) remain our top picks in tor.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2018-11-13

SGX Stock Analyst Report BUY MAINTAIN BUY 0.850 SAME 0.850

BUY MAINTAIN BUY 1.970 SAME 1.970

NOT RATED MAINTAIN NOT RATED 0.330 SAME 0.390

BUY MAINTAIN BUY 3.590 SAME 3.590

HOLD MAINTAIN HOLD 0.190 SAME 0.190