Regional Plantations - Maybank Kim Eng 2019-02-11: Easing Pressure On Stockpile

FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - Easing Pressure On Stockpile

Indonesia’s export tax structure revamp in Dec 2018 and India’s cut in palm oil import duties on 1 Jan 2019 have boosted Malaysia’s exports in January. Higher exports (+21% m-o-m, +14% y-o-y) have helped offset the still high output in January, and reduced stockpile from its record levels in Dec 2018.
YTD, plantation share prices have recovered a bit alongside CPO spot price / 3M Futures price recovery which rebounded by +6%/+7% to MYR2,134/t / 2,266/t on improving prospects. But watch out for the party poopers with the upcoming weak 4Q18 results release. Maintain NEUTRAL on the sector.
Our top BUYs are FIRST RESOURCES LIMITED (SGX:EB5) and BUMITAMA AGRI LTD. (SGX:P8Z).

After seven months of successive stockpile climb, Malaysian Palm Oil Board’s (MPOB) stockpile subsided to 3.0m MT (-7% m-o-m, +18% y-o-y) as at end-Jan 2019. This was due to better-than-expected exports (1.68m MT; +21% m-o-m, +14% y-o-y) and improved domestic consumption (0.36m MT; +9% m-o-m, +7% y-o-y) which offset the still strong output (1.74m MT; -4% m-o-m, +10% y-o-y) whereby Jan 2019 output was the highest on record for the January month.
As for exports, Indonesia’s revision in export tax structure on 4 Dec 2018 (which provided a more level playing field for Malaysian refiners), and India’s cut in palm oil import duties have definitely helped boost Malaysian exports.

The preliminary Malaysian export estimates for shipments in the first 10 days of February by Amspec and Intertek (independent cargo surveyors) indicate a decline of -13% / -11% m-o-m to 393,353/ 406,829 MT. This is not surprising given the long Chinese New Year break in early February.
Overall, for the month of February, we could potentially witness weaker m-o-m exports largely due to shorter calender days (-3 days or -10% m-o-m). Nonetheless, this will be matched by lower CPO output in February.
For now, we expect further drawdown in stockpile to around 2.8m-2.9m MT by end-Feb 2019.

With easing palm oil stockpile, CPO price has been making a steady recovery YTD. As we enter into seasonal low output period in 1H19, we expect CPO price to resume its price recovery in the coming months. With Brent crude oil at ~USD60/bbl, and the still wider-than-usual price discounts of palm oil against Argentina soyoil and EU rapeseed oil, this will continue to limit CPO price on the downside.
Indonesia (and to a lesser extend Malaysia) continues to hold the key in supporting and lifting CPO price higher as the government boost the usage of palm biodiesel with its biodiesel mandate going full-steam in 2019.

After seven months of successive stockpile climb, Malaysian Palm Oil Board’s (MPOB) stockpile subsided to 3.0m MT (-7% m-o-m, +18% y-o-y) as at end-Jan 2019. This was due to better-than-expected exports (1.68m MT; +21% m-o-m, +14% y-o-y) and improved domestic consumption (0.36m MT; +9% m-o-m, +7% y-o-y) which offset the still strong output (1.74m MT; -4% m-o-m, +10% y-o-y) whereby Jan 2019 output was the highest on record for the month of January.
As for exports, 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 palm oil import duties on 1 Jan 2019 have boosted Malaysian exports.
M-o-m, exports to major destinations were broadly higher led by India (0.32m MT; +12% m-o-m, +58% y-o-y), China (0.32m MT; +18% m-o-m, +102% y-o-y), EU (0.24m MT; +161% m-o-m, +34% y-o-y), USA (0.06m MT; +6% m-o-m, +27% y-o-y), Turkey (0.06m MT; +80% m-o-m, -33% y-o-y), Vietnam (0.04m MT; +37% m-o-m, -28% y-o-y), and Others (0.49m MT; +12% m-o-m, -14% y-o-y). Weaker exports were reported to Bangladesh (0.001m MT; -93% m-o-m, -97% y-o-y), Pakistan (0.08m MT; -23% m-o-m, -7% y-o-y), and Philippines (0.06m MT; -1% m-o-m, +8% y-o-y).

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-02-11

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