Agribusiness - CGS-CIMB Research 2020-03-24: Temporary Suspension Of Estates Operations In 3 Districts In Sabah Due To Covid-19

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

Agribusiness - Temporary Suspension Of Estates Operations In 3 Districts In Sabah Due To Covid-19

  • Sabah has announced that it will temporarily suspend palm oil operations in three districts after some plantation workers tested positive.
  • This is negative for planters with estates in this region like HSP, FGV and IOI Corp, though at this juncture we think earnings impact may not be material.
  • This is because the suspension is for 7 days and there is potential for estates to recover some of the unharvested fruits when they resume works.



Sabah to temporarily suspend palm oil operations in 3 districts

  • Malaysia’s largest palm oil producing state, Sabah, says it will temporarily suspend palm oil operations in three districts after some plantation workers tested positive for the coronavirus. All oil palm plantations in Tawau, Lahad Datu, and Kinabatangan will be suspended from 25 to 31 March 2020 (7 working days), while palm processing factories will be suspended from 27 to 31 March (5 working days), according to a government notice released today.
  • Sabah state, located in East Malaysia, accounts for about 26% of Malaysia’s palm oil planted area as at Dec 2019 and 25.4% of its 2019 CPO production.


Slightly negative for March production due to less working days

  • We are slightly surprised by this development as the federal government announced on 18 Mar that palm oil operations have been exempted from the Movement Control Order (MCO) from 18-31 Mar 2020. We gathered that this is because several plantation workers in these regions have tested positive for COVID-19 and the restriction is a temporary measure to prevent the spread. This will affect harvesting activities for the palm oil estates in these districts for around 7 working days.
  • There are no available official statistics on how much palm oil production from Sabah comes from these regions. Our rough estimate based on distribution of planted estates of industrial crops in Sabah revealed that potentially up to 50% of the oil palm area may be affected by the suspension.
  • We had forecasted that CPO output for Mar could grow by 10% m-o-m to 1.4m tonnes. With this new development, our rough estimate is that it could potentially crimp our Mar production figure by 2.8% or 39,500 tonnes and this could help reduce the palm oil inventory figure for end-Mar. However, should planters that operated in these districts be allowed to resume works from 1 Apr, they will be able to recover some of the unharvested fruits which could flow into production figures in Apr. This development could be slightly positive for CPO prices in the near-term.


Planters that may be affected by this move

  • Based on our rough assessment on the location of plantation company estates based on publicly available figures and pending clarification from management, our initial take on this is that it will affect Hap Seng Plantations the most, followed by IOI Corp and FGV. However, we do not expect the impact on earnings to be material if the suspension is only for seven days, or 2% of total estimated working days for the year.
  • We maintain our average CPO price forecast of RM2,300 per tonne for 2020 and Neutral rating on the sector.





Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-24
SGX Stock Analyst Report ADD MAINTAIN ADD 1.910 SAME 1.910
ADD MAINTAIN ADD 4.580 SAME 4.580



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