Regional Plantations - Maybank Kim Eng 2019-03-11: Hiccup In Stockpile

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

Regional Plantations - Hiccup In Stockpile

Better months ahead

  • Malaysian Palm Oil Board’s (MPOB) stockpile surprisingly trended higher in Feb 2019, on weaker-than-expected exports after a strong start to 2019. Positively, February exports were 6% higher y-o-y.
  • We expect CPO price to strengthen towards mid-year as inventories are set to decline on lower output in 2Q19. This offers tactical trading opportunity in 2Q19 although our 12M NEUTRAL view on the sector is unchanged.
  • Our BUYs are First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and Sarawak Oil Palms (SOP KLSE).

Surprise upturn in February stockpile

  • Malaysian Palm Oil Board’s (MPOB) Feb 2019 stockpile rose 1% m-o-m to 3.05m MT (+23% y-o-y; Jan 2019: -7% m-o-m), ahead of market estimates of 2.95m MT. This was due to lower-than-expected exports (1.32m MT; -21% m-o-m, +6% y-o-y) and lower-than-expected domestic consumption (0.28m MT; -21% m-o-m, +16% y-o-y).
  • Meanwhile, output declined m-o-m to 1.54m MT (-11% m-o-m, +15% y-o-y) mirroring the shorter calendar days in February (vs January month).
  • With the exception of India (as Malaysia benefits from its import duty cut in Jan 2019) and Bangladesh, weaker m-o-m exports were posted to all other major export destinations.

Some recovery in Mar 2019 export estimates

  • The preliminary Malaysian export estimates for shipments in the first 10 days of March by Amspec and Intertek (independent cargo surveyors) indicate a growth of +11%/ +11% m-o-m to 453,283/ 435,464 MT. While on surface it looks encouraging, we should be mindful of the lower base effect of long Chinese New Year break in early February.
  • Overall, we should witness higher m-o-m exports in the month of March largely due to longer calendar days (+3 days or +11% m-o-m) compared to the short month of February. Still, this may be matched by potentially higher CPO output in March although preliminary survey with industry players suggests the low yield cycle is kicking in this month.
  • For now, we expect drawdown in stockpile to below 3.0m MT by end-Mar 2019.

2Q19 offers tactical opportunity due to annual cycle

  • The much anticipated slowdown in Malaysia’s production (during this seasonally low output period) has been largely pushed back by one-to-two months. We believe the recent CPO price correction in Feb 2019 (-8% m-o-m) was in response to this pushback as reflected in the still high Feb 2019 stockpile. Hence, we believe much of the negativity has been priced in and we expect CPO price to resume its recovery in the coming months.
  • Furthermore, the CPO price downside will be limited by the wider-than-usual price discounts of palm oil against Argentina soyoil and EU (Germany) rapeseed oil, and still high Brent crude oil price. Indonesia (and to a lesser extend Malaysia) remains the pillar of CPO price support as the government’s B20 mandate goes full-steam in 2019.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-03-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.030 SAME 2.030