Plantation Companies - DBS Research 2019-06-12: Normalising Stockpile, But Weak Soybean Price A Bane For CPO Price

Regional Plantation Companies - DBS Group Research | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5) WILMAR INTERNATIONAL LIMITED (SGX:F34) BUMITAMA AGRI LTD. (SGX:P8Z)

Plantation Companies - Normalising Stockpile, But Weak Soybean Price A Bane For CPO Price

  • Stockpile continued to slide.
  • But weak soybean price could dampen CPO price.
  • Exports likely to stay solid on CPO price affordability.
  • London Sumatra Indonesia, First Resources, Bumitama Agri, Wilmar International, FGV Holdings and TSH Resources can withstand the current low CPO price trend.



Stockpile continued to slide, but still no price recovery.

  • Malaysia’s CPO stockpile dropped to 2.4m MT in May (2.7m MT in April), but price remained stagnant at around RM2,000 per MT (US$480 per MT) due to external factors, mainly weak soybean price.
  • The current soybean oil to CPO price premium is US$120 per MT, which is line with the historical trend of US$110 per MT and could limit any CPO price recovery.
  • May stockpile returned to the 2Q18 level, when CPO price stood at RM2,500 per MT (US$600 per MT).


Affordability to support export performance, firm oil price also helps.

  • May exports of 1.7m MT (+32% y-o-y, +4% m-o-m) were underpinned by EU exports amid flat m-o-m exports to China and India. The current low CPO prices and firm crude oil price could boost fuel demand arising from biodiesel blending.
  • We expect exports to remain steady at 1.7m MT in the next month amid inexpensive CPO prices.


Meanwhile output is still relatively sound.

  • Output reached 1.67m MT (+9.6% y-o-y, +1.3% m-o-m) in May – the lower-than-expected m-o-m palm oil output expansion led to stockpile drawdown, albeit output still expanded at high single digits on a y-o-y basis.
  • The strong output performance was partly driven by the mild weather which helped offset the muted yield performance. Output is expected to continue climbing in the upcoming month as oil palm trees enter the high output season.


Our picks can withstand current low price environment.

  • Plantation stocks corrected last month due to the escalating US-China trade war that dampened soybean price and diminished the price recovery prospects of CPO. Nonetheless, we are focused on planters that can withstand the current low price, benefit from any industry consolidation trend, and enjoy strong CPO yield to stay profitable.
  • Our top picks of London Sumatra Indonesia, FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z), WILMAR INTERNATIONAL LIMITED (SGX:F34), FGV Holdings and TSH Resources are the regional planters that fit the bill tation universe.





William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-06-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.950 SAME 1.950
BUY MAINTAIN BUY 3.860 SAME 3.860
BUY MAINTAIN BUY 0.800 SAME 0.800



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