Regional Plantations - DBS Research 2019-04-11: Hari Raya To Boost Apr-May Exports

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

Regional Plantations - Hari Raya To Boost Apr-May Exports

Seasonal Hari Raya CPO restocking in April-May bodes well for CPO prices.
Stockpile to drop further after falling below 3m MT in March.
According to Indonesia Palm Oil Association (GAPKI), Indonesia’s stockpile trailed Malaysia’s in February.
Adding FGV to our BUY list, on top of London Sumatra Indonesia (LSIP), First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), Wilmar International (SGX:F34) and TSH Resources.

We expect Malaysia’s CPO stockpile to stay below 3.0m MT in the next two months on the back of seasonal Hari Raya export pick-up. Malaysia’s CPO stockpile dropped to a 5-month low of 2.9m MT (+25% y-o-y, -4% m-o-m) in March, as exports picked up traction in the wake of the February low.
Nonetheless, production inched up m-o-m to 1.6m MT (+6.2% y-o-y, +8.3% m-o-m).

We expect Malaysia’s exports to stay above 1.6m MT in April-May due to Hari Raya restocking activities, led by India and Pakistan.
Malaysia’s CPO exports reached 1.62m MT (+3.3% y-o-y, +22.4% m-o-m) in March, after the February low due to normalising exports to China, which doubled m-o-m to 175k MT in March.

CPO prices have gained traction of late on the back of Hari Raya seasonal restocking. Meanwhile, the Indonesia Palm Oil Association (GAPKI) announced that February 2019 stockpile stood at 2.5m MT, below Malaysia’s level due to zero export levies.
Soybean prices will be the key determinant of CPO’s further price upside potential in the short term, as the spread has now normalised to US$120-130 per MT vs. last month’s US$160 per MT.

We maintain our BUY calls for London Sumatra Indonesia (LSIP), FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z), WILMAR INTERNATIONAL LIMITED (SGX:F34) and TSH Resources, while augmenting this list with FGV Holdings Bhd for its turnaround prospect.
We believe the market has already priced in the modest earnings prospects for oil palm planters amid the low CPO price environment. We prefer companies that can deliver volume growth and yield expansion to keep cost low, underpinned by the fact that planters’ valuations are still hovering below their 5-year average PE of 11.0x-14.0x.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-04-11

SGX Stock Analyst Report BUY MAINTAIN BUY 1.970 SAME 1.970

BUY MAINTAIN BUY 0.850 SAME 0.850

BUY MAINTAIN BUY 3.600 SAME 3.600

HOLD MAINTAIN HOLD 0.190 SAME 0.190