Regional Plantations - Maybank Kim Eng 2019-01-11: Brighter Months Ahead

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

Regional Plantations - Brighter Months Ahead

Stockpile has peaked in Dec 2018

  • No major surprises on MPOB’s Dec 2018 record stockpile of 3.22m MT. Positively, CPO spot price has recovered to above MYR2,000/t since the start of the year as the industry looks forward to a seasonally low output period. India’s recent import duty cut on palm oil is seen as a demand booster for Malaysian palm oil in 2019. Stay Neutral on the sector.
  • Our top BUYs are FIRST RESOURCES LIMITED (SGX:EB5) and BUMITAMA AGRI LTD. (SGX:P8Z).



Higher imports in 2018 a key drag

  • This is the seventh but should be the final month of successive m-o-m stockpile climb.
  • Malaysian Palm Oil Board’s (MPOB) Dec 2018 stockpile hit another record high at 3.22m MT (+7% m-o-m, +18% y-o-y), marginally above street estimates. The +0.2m MT of inventory build-up in Dec was due to output being still relatively strong at 1.81m MT (-2% m-o-m, -1% y-o-y) while exports and domestic consumption remained flattish m-o-m at 1.38m MT (+1% m-o-m, -3% y-o-y) and 0.33m MT (+2% m-o-m, +34% y-o-y) respectively.
  • For 2018, the inventory build-up of +0.48m MT during the year was largely due to higher imports of cheaper Indonesian palm oil (+0.29m MT) which rose 51% y-o-y to 0.84m MT. Full-year production (19.5m MT, -2% y-o-y) and exports (16.5m MT, flat y-o-y) were relatively unchanged.
  • The only positive was that domestic consumption grew 19% y-o-y to 3.4m MT.


Export survey alludes to a strong start for 2019

  • The preliminary Malaysian export estimates for shipments in the first 10 days of January by Amspec and Intertek (independent cargo surveyors) indicate a jump, by +53% / +47% m-o-m to 457,880/ 451,845 MT.
  • Indonesia’s export tax structure revamp announced in early Dec 2018 (providing a more level playing field for Malaysian refiners) and India’s cut in import duties on 1 Jan 2019 are perhaps aiding Malaysian exports. Should this positive trend continues, stockpile could probably drop to 3.07m MT (-5% m-o-m) by end-Jan 2019.


Expect CPO price recovery in 2019

  • As palm oil stockpile peaked only in Dec 2018, this may somewhat delay our expectation of a more meaningful CPO price recovery by 1-2 months to end-1Q19 and possibly into early 2Q19. The still wider than usual price discounts of palm oil against Argentina soyoil and EU rapeseed oil will continue to limit CPO price downside.
  • Unfortunately, the palm oil-gas oil (ie diesel) price spread has narrowed sharply of late to almost near parity following recent CPO price ascension while gas oil price corrected somewhat. Even at parity, we understand Indonesia has sufficient CPO funds reserve to run its B20 programme this year.
  • Indonesia continues to hold 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 in 2019.


December stockpile hit new high

  • Malaysian Palm Oil Board’s (MPOB) Dec 2018 stockpile hit another record high at 3.22m MT (+7% m-o-m, +18% y-o-y), marginally above street estimates. The +0.2m MT of inventory build-up in December was due to output staying relatively strong at 1.8m MT (-2% m-o-m, -1% y-o-y) while exports and domestic consumption remained flattish m-o-m at 1.38m MT (+1% m-o-m, -3% y-o-y) and 0.33m MT (+2% m-o-m, +34% y-o-y) respectively.
  • MoM, exports to major destinations were a mixed bag. It was higher to China (0.27m MT; +56% m-o-m, +53% y-o-y), India (0.28m MT; +17% m-o-m, +165% y-o-y), Pakistan (0.10m MT; +23% m-o-m, +23% y-o-y), and USA (0.06m MT; +64% m-o-m, -12% y-o-y). But it was lower to Bangladesh (0.01m MT; -63% m-o-m, -50% y-o-y), EU (0.1m MT; -37% m-o-m, -55% y-o-y). Philippines (0.06m MT; -2% m-o-m, -24% y-o-y), Turkey (0.03m MT; -11% m-o-m, -53% y-o-y), Vietnam (0.03m MT; -8% m-o-m, -37% y-o-y), and Others (0.44m MT; -18% m-o-m, -22% y-o-y).


Higher imports in 2018 a key drag

  • As for 2018, the inventory build-up of +0.48m MT during the year was largely due to higher imports of cheaper Indonesian palm oil (+0.29m MT) which rose 51% y-o-y to 0.84m MT. Full-year production (19.5m MT, -2% y-o-y) and exports (16.5m MT, flat y-o-y) were relatively unchanged. The only positive was that domestic consumption grew 19% y-o-y to 3.4m MT.
  • 2018’s exports saw India recording the highest growth at 24% y-o-y to 2.5m MT, followed by Pakistan (1.16m MT; +14% y-o-y) and Bangladesh (0.31m MT; +8% y-o-y) while the rest of the other major destinations recorded decline of -3-27% y-o-y.





Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-01-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.100 SAME 2.100
BUY MAINTAIN BUY 0.960 SAME 0.960



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