Agribusiness - CGS-CIMB Research 2019-09-24: Indonesia To Keep Zero Palm Oil Export Levy

Agribusiness - CGS-CIMB Research | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34) FIRST RESOURCES LIMITED (SGX:EB5)

Agribusiness - Indonesia To Keep Zero Palm Oil Export Levy

  • Indonesia has decided to keep the palm oil export levy at zero until year end.
  • This is expected to keep Indonesian palm oil competitive against peers.
  • Positive for CPO players in Indonesia as it will help support prices as we head into the peak production season for palm oil.
  • Maintain Neutral rating.



Indonesia to keep palm oil export levy at zero until year end

  • The Indonesian government has decided to keep the palm oil export levy at zero for the rest of 2019, according to the Coordinating Minister for Economic Affairs, Darmin Nasution.
  • Indonesia will reimpose a palm oil export levy in January if prices rise above US$570/tonne, as the country will begin to use the B30 biodiesel blending mandate, Nasution added. The measure was taken despite average CPO prices at US$574.9/tonne, as the government hopes to maintain farm-gate price.


The zero export levy will keep Indonesian palm oil competitive

  • We are not too surprised by the Indonesian government’s decision to keep the palm oil export levy at zero. This is because Malaysia has announced a similar move to exempt CPO export duty, effective from 1 May 2019 until the end of the year.
  • We are of the view that this move will keep CPO exports from Indonesia competitive against Malaysian peers ahead of the peak production season for palm oil in 4Q19 and help to keep palm oil inventory in Indonesia at a manageable level.


Unlikely to affect B20 programme in Indonesia at current oil price

  • Our rough calculation reveals that the Estate Crop Fund is likely to have sufficient funds to subsidise the B20 programme at the current crude oil price of US$63 per barrel and CPO price of RM2,089 per tonne unless the price gap between the two widens significantly.
  • To recap, Indonesia recently raised its mandatory biodiesel allocation for 2019 to 6.63m kls from 6.19m kls. Indonesia plans to raise its biodiesel mandate to B30 by Jan 2020 from B20 currently. As at 31 Dec 2018, we gathered that the outstanding balance in the CPO fund was around US$1.44bn.


Positive for Indonesian planters

  • This news is positive for upstream planters with exposure to Indonesia as the exemption of export levy rates could help support CPO prices at current levels. However, this will not impact our FY19F/20F net profit forecasts for planters, which assume average CPO price of RM2,100/RM2,300 per tonne (US$502/US$550 per tonne) at the threshold where the export levy is likely to remain at zero.
  • We maintain our Neutral rating and top picks in the region continue to be WILMAR INTERNATIONAL LIMITED (SGX:F34), FIRST RESOURCES LIMITED (SGX:EB5) and Genting Plantations.





Ivy NG Lee Fang CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-24
SGX Stock Analyst Report ADD MAINTAIN ADD 4.580 SAME 4.580
ADD MAINTAIN ADD 1.760 SAME 1.760



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