Regional Plantations - Maybank Kim Eng 2019-09-27: MKE Conference Takeaways

SGinvestors.io

FIRST RESOURCES LIMITED (SGX:EB5) BUMITAMA AGRI LTD. (SGX:P8Z)

Regional Plantations - MKE Conference Takeaways

No longer hazy outlook on CPO price

• The new commitment by RSPO members on NDPE is going to make it even harder for new oil palm expansion going forward. In the immediate term, the anticipated muted supply growth in 2020 on biological tree stress in this region should drive palm oil prices higher.
• Nonetheless, share prices of Malaysia large-caps already reflect a recovery in the CPO price over the near-term. We prefer bombed out small-mid caps in Malaysia and Singapore.
• Our BUYs are First Resources and Bumitama Agri, Ta Ann & Sarawak Oil Palms.

Close to 100 participants attended

• Last week, we hosted our annual plantation conference titled “Investing for the Future” in Kuala Lumpur in collaboration with Bursa Malaysia. 4 keynote speakers presented on three key topics. Close to 100 participants attended this year’s conference. Key takeaways are:
  1. Dato’ Yeo How is optimistic of a CPO price recovery in 2020 with price likely to exceed MYR2,600/t sometime next year. He believes palm oil prices are beginning a long-term uptrend. His optimism stems from
     1. slowdown in palm oil production growth in 2020 on biological tree stress,
     2. tightening oilseeds supply on declining soybean supplies in the USA and rapeseed supplies in the EU,
     3. lower soybean crush in China (and hence lower soybean oil supply, a by-product of crushing), and
     4. huge demand for biodiesel in 2020, especially Indonesia with its B30 mandate (from B20).
  2. The bar on sustainability has been raised further with the adoption of 2018 RSPO Principles & Criteria (P&C). RSPO members are now committed to No Deforestation, No Peat and No Exploitation (NDPE). In addition, RSPO is introducing a new Decent Living Wage benchmark to ensure that workers are fairly remunerated.
  3. Malaysia’s palm oil refiners have been facing overcapacity challenges for years. Of late, food safety issues have been gaining grounds in the EU relating to food contaminants like 3-MCPDE and GE. These processed food contaminants are not confined to palm oil, but present in olive oil, rapeseed oil and soyoil too. Positively, they are not inherent in palm oil but picked up in the supply chain (ie from estate to mills as precursors, and end up in refinery). With improvement in agricultural practices and processes at the mills/ refineries, these food contaminant issues can be resolved.

Good for price, not so good for supply

• We concur with Dato’ Yeo How’s view that CPO price will be stronger in the medium term on anticipated supply constraints, especially for palm oil. The new RSPO commitment on NDPE will likely result in little-to-no expansion on forested areas (ie limited to scrub land – see Figs a-c) and aggravate the muted global palm oil supply growth in the future.
• Our CPO ASP forecast of MYR2,100/t for 2019, MYR2,300/t for 2020 and MYR2,400/t for 2021 are unchanged.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-09-27

SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800

BUY MAINTAIN BUY 0.800 SAME 0.800