Regional Plantation Companies - DBS Research 2019-03-11: Signs Of Peaking Stockpile

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

Regional Plantation Companies - Signs Of Peaking Stockpile

• Stockpile stood at 3.0m MT in February, flat m-o-m.
• March exports to normalise on China import recovery.
• Bumper crop effect softened in February.
• London Sumatra, FIRST RESOURCES LIMITED (SGX:EB5), WILMAR INTERNATIONAL LIMITED (SGX:F34) and TSH Resources are BUYs in our universe.

Stagnant stockpile at 3.0m MT in February.

• Malaysia’s CPO stockpile stood at 3.0m MT in February due to lower output despite the lower m-o-m exports due to Chinese New Year (CNY) holidays. We expect stockpile to gradually head south though staying above 2.7m MT in April due to normalising output and rebound in China imports post holiday season.

Output lower m-o-m, bumper crop effect eased in February.

• Output reached 1.5m MT (+15% y-o-y, -11% m-o-m), in line with our forecast. The higher y-o-y production was driven by the bumper crop effect that persisted in 1Q19 despite the seasonally low production in the period. The bumper crop effect softened m-o-m, as seen in the lower production trend.
• We forecast March production to reach 1.5m MT -1.6m MT, before trending lower in April and May.

Weaker exports in February due to CNY holidays.

• The CNY holidays in China had impacted exports. Exports to China reached only 80k MT, lower than the January level of 300k MT, though exports to India climbed by 41% m-o-m to 448k MT (+72% y-o-y).
• Malaysia’s total exports reached 1.3m MT (+6% y-o-y, -21% m-o-m).

Positive development in the sector may help CPO price to rebound.

• We see scope for CPO price to regain traction on the back of Indonesia’s announcement of zero export levy resumption till June, and CPO absorption commitment of 6m MT for Indonesia’s B20 programme.
• We have selectively picked plantation names that can endure the currently low prices and can achieve reasonable earnings growth organically, even in the absence of a significant rally in CPO price. Moreover, current planters’ valuation is undemanding, at FY19F PE of 12.0x-13.0x PE, which is below the 5-year average PE.
• We retain our BUY calls for London Sumatra (LSIP), FIRST RESOURCES LIMITED (SGX:EB5), WILMAR INTERNATIONAL LIMITED (SGX:F34) and TSH Resources (TSH).

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-03-11

SGX Stock Analyst Report BUY MAINTAIN BUY 0.850 SAME 0.850

BUY MAINTAIN BUY 1.970 SAME 1.970

BUY MAINTAIN BUY 3.600 SAME 3.600

HOLD MAINTAIN HOLD 0.190 SAME 0.190