Regional Plantations - Maybank Kim Eng 2018-12-10: Stockpile At New Record High Of 3-Mil MT

Regional Plantation Stocks - Maybank Kim Eng Research | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - Stockpile At New Record High Of 3-Mil MT

High stockpile reflected in low CPO spot price

  • Malaysian Palm Oil Board’s (MPOB)’s Nov stockpile rose to all-time high as seasonal export decline outpaced production decline. We believe this is already reflected by the low CPO spot price of below MYR2,000/t. CPO price may have bottomed if stockpile has peaked. One positive is output has peaked in Oct and came off sharply in Nov. 
  • We keep our view that a seasonal price recovery can be expected in 1Q19 as the industry enters low output period. Stay NEUTRAL on the sector for now with selected BUYs on First ResourcesBumitama Agri, and Ta Ann.



Seasonal export decline outpaced production drop

  • Into the sixth month of successive m-o-m stockpile climb, Malaysian Palm Oil Board’s (MPOB) Nov 2018 stockpile hit a record high of 3.0m MT (+10% m-o-m, +18% y-o-y), in line with street estimates.
  • The higher stockpile was largely due to a steeper seasonal decline in Nov exports (-13% m-o-m, +1% y-o-y) which outpaced decline in production to 1.85m MT (-6% m-o-m, -5% y-o-y). This was coupled with higher imports of 0.13m MT (+15% m-o-m, +345% y-o-y) from Indonesia due to the bumper harvest there as some Malaysian planters with operations in Indonesia shipped CPO back to be processed here.
  • Meanwhile, domestic consumption rose to 0.32m MT (+3% m-o-m, +20% y-o-y).


Seasonal decline in December?

  • The preliminary Malaysian export estimates for shipments in the first 10 days of December by Amspec and Intertek (independent cargo surveyors) indicate a further decline of -2.5% / -3.3% m-o-m to 299,527/ 308,207 MT. This could be seasonal in nature, in tandem with the anticipated m-o-m decline in December production.


Look forward to better pricing by end-1Q19


  • CPO price may have bottomed if inventories have peaked for the year. We maintain our view that the CPO price will make a more meaningful seasonal price recovery in 1Q19 during the low crop months.
  • In the interim, Indonesia holds the key in supporting CPO price as the government has pledged to boost the usage of palm biodiesel with its B20 mandate going full-steam. And exports in December bears close monitoring following Indonesia’s new decree (effective 4 Dec 2018) to exempt palm oil export levy when CPO price is < USD570/t as this is seen to create a more level playing field for Malaysian exporters, and deemed positive in lowering Malaysia’s high stockpile (see report: Regional Plantations - Indonesia sets new threshold on palm oil export levy). 
  • The wide price discounts of palm oil against Argentina soyoil, EU rapeseed oil and gas oil (ie diesel) will also work to limit CPO price downside.


November stockpile at record high

  • Malaysian Palm Oil Board’s (MPOB) November 2018 stockpile hit record high of 3.0m MT (+10% m-o-m, +18% y-o-y), in line with street estimates.
  • The higher stockpile was largely due to a steeper seasonal decline in Nov exports (-13% m-o-m, +1% y-o-y) which outpaced slower decline in production to 1.85m MT (-6% m-o-m, -5% y-o-y). This was coupled with higher imports of 0.13m MT (+15% m-o-m, +345% y-o-y) from Indonesia due to the bumper harvest there as some Malaysian planters with operations in Indonesia shipped CPO back to be processed here. Meanwhile, domestic consumption rose to 0.32m MT (+3% m-o-m, +20% y-o-y).
  • M-o-m, exports were lower to all destinations except India with strong export numbers of 0.242m MT (+144% m-o-m, +142% y-o-y). Exports decline were led by Bangladesh (0.023m MT, -50% m-o-m, +84% y-o-y), Turkey (0.038m MT, -30% m-o-m, - 19% y-o-y), Others (0.531m MT, -27% m-o-m, -1% y-o-y), USA (0.035m MT, -24% m-o-m, -32% y-o-y), China (0.173m MT, -21% m-o-m, -15% y-o-y), Pakistan (0.085m MT, -20% m-o-m, -10% y-o-y), Vietnam (0.035m MT, -14% m-o-m, -46% y-o-y), Philippines (0.064m MT, -12% m-o-m -27% y-o-y), and EU (0.149m MT, -11% m-o-m, -4% y-o-y).


Risk statement

  • There are several risk factors which may affect our sector view, earnings estimates, price targets, and ratings of stocks under coverage. Key risks to the sector and companies are:
    1. weather anomalies resulting in poorer-than-expected output growth,
    2. lower-than-expected CPO price achieved,
    3. negative policies imposed by import countries,
    4. unfriendly government policies at producing countries,
    5. sharply lower crude oil prices which makes palm biodiesel demand not viable, and
    6. weaker competing oil prices (like soybean and rapeseed).





Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-12-10
SGX Stock Analyst Report BUY MAINTAIN BUY 2.000 SAME 2.000
BUY MAINTAIN BUY 0.980 SAME 0.980



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