Regional Plantations - Maybank Kim Eng 2019-06-13: Boosted By Strong Exports

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

Regional Plantations - Boosted By Strong Exports

Stockpile down to 10-month low

  • May stockpile fell 10% m-o-m on strong pick up in exports. We expect further easing in June stockpile in anticipation of output decline as some foreign workers travel home for the Eid al-Fitr celebration.
  • Fundamentals are improving, supporting higher CPO prices ahead. Our 12M NEUTRAL view on the sector is unchanged, although long funds should consider taking the opportunity to accumulate bombed out small-mid caps during this down-cycle.
  • Our BUYs are FIRST RESOURCES LIMITED (SGX:EB5), BUMITAMA AGRI LTD. (SGX:P8Z), Ta Ann and Sarawak Oil Palms.

Stockpile eases for third consecutive month

  • Malaysian Palm Oil Board’s (MPOB) May 2019 stockpile fell 10% m-o-m to 2.45mt (million tonnes) (+13% y-o-y), broadly in line with market estimates of 2.46mt. The m-o-m stockpile drawdown was due to a pick-up in exports (1.71mt; +4% m-o-m, +33% y-o-y), while output was barely higher at 1.67mt (+1% m-o-m, +10% y-o-y) and domestic consumption grew 21% m-o-m to 0.3mt (+10% y-o-y). Higher exports were recorded to EU, India, Turkey and USA.
  • Meanwhile, imports were marginally down at 0.061mt (-1% m-o-m, +92% y-o-y).

Output to hit a low in June 2019

  • The preliminary Malaysian export estimates for shipments in the first 10 days of June by Amspec, Intertek and SGS (independent cargo surveyors) indicate a decline of 32%/31%/33% m-o-m to 376,802/378,963/377,240t (tonnes). While the preliminary estimates look lacklustre, it is not unexpected as exports were likely affected by the week long Eid al-Fitr celebration on 5-6 June.
  • Likewise, palm oil production during the same period was likely to be equally affected as some workers (especially Indonesians) travel home for 2-3 weeks. Output is likely to hit a low for the year in June 2019.
  • Recall that in June last year, output was at 2018’s low of 1.33mt. By our estimate, this should lead to further drawdown in inventory to below 2.4mt by end-June.

CPO price downside limited on better fundamentals

  • The slowdown in Malaysia’s output is taking shape, albeit slowly. We stand by our earlier view (see report: Regional Plantations - 2019, A Year Of Price Recovery) that 2019’s output growth will slow from 2Q19 as oil palm trees in the region enter into biological rest mode after nearly 2-years of good harvest post the last major El Nino, and due to a lack of fertilizing work by smallholders in 2H18 on poor CPO prices.
  • Meanwhile, CPO price downside would be limited by the wider-than-usual price discounts of palm oil against Argentina soyoil and EU (Germany) rapeseed oil.
  • Despite the recent decline in Brent crude oil price, discretionary demand for palm biodiesel could increase during the summer months of the Northern Hemisphere as the current POGO spread still makes economic sense even without subsidies.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.930 SAME 1.930