Regional Plantations - Maybank Kim Eng 2019-11-11: Tightening Supply Seen Boosting Exports And Prices

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

Regional Plantations - Tightening Supply Seen Boosting Exports And Prices

The sleepy sector finally awakens

  • MPOB’s Oct stockpile unexpectedly declined m-o-m to 2.35mt on lower-than-expected production and better-than-expected exports. This was reflected in the CPO price rally where spot & 3M Futures jumped 17%/18% over the past month. However, we believe CPO price is due for a short correction before gaining strength again in 1H20.
  • Nonetheless, share prices of small-mid caps remain attractive and have lagged the CPO price rally.
  • Our BUYs are First Resources and Bumitama Agri, Ta Ann & Sarawak Oil Palms.

October stockpile unexpectedly shrunk

  • MPOB’s Oct stockpile trended lower at 2.35mt (-4% m-o-m, -14% y-o-y); below market estimates of 2.54mt. The stockpile drawdown was primarily due to a decline in production at 1.80mt (-3% m-o-m, -9% y-o-y), an indication that Malaysia’s output likely peaked in Sept.
  • Besides the surprising decline in production, exports picked up m-o-m to 1.64mt (+16% m-o-m, +4% y-o-y) despite lower purchases from India as other major importers such as EU and China picked up the pace.
  • We believe the sudden strength in exports is in part due to panic buying as the CPO spot price jumped 17% in the last month (3M Futures: +18% m-o-m) in anticipation of the seasonal production decline which typically ends in Feb 2020.

A promising start to November exports estimates?

  • The preliminary Malaysian export estimates for shipments in the first 10 days of November by Amspec and Intertek (independent cargo surveyors) indicate a 12%/20% m-o-m increase to 414,020/412,040t. The preliminary November estimates appear promising for now but we would caution against extrapolating it for the rest of the month.

CPO price lost some price competitiveness of late

  • The recent jump in CPO price has sharply narrowed the price discount of CPO to soyoils to USD83-114/t, below historical averages. Furthermore, palm biodiesel is now trading at a premium to diesel price which will discourage discretionary biodiesel blending.
  • We believe palm oil has lost some price competitiveness and this will be reflected in slowing exports in the coming months. By our estimate, we believe MPOB’s stockpile will now end the year at around 2.5mt (previous estimate at ~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 2020-21 CPO price to be stronger than 2019 as overall palm oil supply tightens.
  • 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/ 2019-11-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.800 SAME 1.800