Regional Plantations - Maybank Kim Eng 2019-10-10: Seasonal Factor At Play

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

Regional Plantations - Seasonal Factor At Play

September stockpile build-up within expectation

  • MPOB’s September stockpile build-up is seasonal in nature, and in part due to sharply lower m-o-m exports following imposition of higher import duty on Malaysian refined palm oil by India. As long as the stockpile build-up does not exceed 3mt by year-end, we expect further CPO price recovery in 2020. However, share prices of Malaysia large-caps have already reflected 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.

Sept stockpile broke 8 months of downtrend

  • Malaysian Palm Oil Board’s (MPOB) Sept stockpile was higher m-o-m at 2.45mt (+9% m-o-m, -3% y-o-y); in line with market estimates. The stockpile build-up was primarily due to a sharp decline in exports of 1.41mt (-19% m-o-m, -13% y-o-y) following India’s decision to impose higher import duty (+5-ppts) on Malaysian refined palm oil effective early September. This was reflected in a sharp decline in exports to India at 0.31mt (-44% m-o-m, +36% y-o-y) as Indian buyers loaded up the month before.
  • The lower exports were partly mitigated by higher domestic consumption of 0.30mt (+8% m-o-m, +9% y-o-y). Meanwhile, output remained seasonally strong in September at 1.84mt (+1% m-o-m, -1% y-o-y).

Prelim October export estimates seems weak

  • The preliminary Malaysian export estimates for shipments in the first 10 days of October by Amspec and Intertek (independent cargo surveyors) indicate a 6%/20% m-o-m decline to 368,737/344,330t (tonnes). The preliminary October estimates appear negative for now but we would caution against extrapolating it for the rest of the month.

Expect further CPO price recovery in 2020

  • We expect MPOB’s monthly stockpile to climb higher in October on seasonally high output. Thereafter, we expect November & December outputs to weaken m-o-m and this will cap the build-up in stockpile. Unlike end-Dec 2018 whereby stockpile reached a historic peak of 3.22mt, we doubt 2019’s year-end stockpile will exceed 3mt.
  • By our preliminary estimate, MPOB’s stockpile should close the year around ~2.8mt. With lower carried forward stocks into 2020, biological tree stress (after 2 years of strong harvest and cut back in fertilizer application by smallholders), and slower growth in mature oil palm area (due to lack of new plantings in Indonesia and Malaysia since 2015), we expect the CPO price to strengthen further as overall palm oil supply tightens in 2020-21.
  • Our CPO ASP forecast of MYR2,100/t for 2019 and MYR2,300/t for 2020 are unchanged.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800