Regional Plantation Companies - DBS Research 2020-03-10: Defending Against The Oil Shock

Regional Plantation Companies - DBS Research | SGinvestors.io BUMITAMA AGRI LTD. (SGX:P8Z) FIRST RESOURCES LIMITED (SGX:EB5) WILMAR INTERNATIONAL LIMITED (SGX:F34)

Regional Plantation Companies - Defending Against The Oil Shock

  • Malaysia’s stockpile dropped to 1.7m MT in February.
  • Indo’s B30 program must stay alive beyond 3Q20.
  • Market has priced in US$450 per MT of CPO price.
  • Bumitama Agri (SGX:P8Z), First Resources (SGX:EB5), Wilmar (SGX:F34), Kuala Lumpur Kepong, TSH Resources and FGV Holdings and new addition London Sumatra Indonesia are our BUY counters for plantation universe.



Malaysia’s CPO stockpile dropped to 1.7m MT in February.

  • Malaysia reported that its palm oil stockpile dropped slightly to 1.7m MT in February (-44% y-o-y, -2.1% m-o-m), the lowest since June 2017 due to stronger-than-expected domestic consumption. This is despite the 10% m-o-m higher output to 1.29m MT (-17% y-o-y) and 11% m-o-m drop in export to 1m MT (-18% y-o-y).


Oil shock: Indonesia’s commitment on biodiesel programme beyond 3Q20 is crucial to keep prices firm.

  • The Indonesia government’s commitment on B30, will be the key cushion for global fuel-based demand amid the current low oil price. At current crude oil and CPO price level, we estimate CPO fund to stay at 6-8 months to support the programme.
  • On the other hand, we believe the recent plunge in oil price will not drag palm oil price further as the correlation between both oils had detached since 2016 when palm oil price performed well due to El Nino while crude oil price dropped on strong output back then.


DBS CPO price of US$596 per MT maintained; buffering over uncertainties.

  • Palm oil price has corrected from its peak of US$762 per MT this year, sending the year-to-date average to US$673 per MT because of spread to soybean and oil price. This is still well above our FY20 forecast of US$596 per MT. It is also a good buffer for current uncertainties on COVID-19 and oil price rout, provided the output level still keeps the price firm relative to other edible oils.
  • CPO spread to soybean oil has widened to US$40 per MT, but still well below its historical spread of US$100-110 per MT.


US$450 per MT CPO price scenario priced in.

  • CPO stocks has priced in CPO price of US$450 per MT which largely at average CPO price in 1H19.
  • We upgraded LSIP to BUY from Indonesia’s listed counter, while maintaining our BUY calls on Bumitama Agri (SGX:P8Z), First Resources (SGX:EB5), Wilmar (SGX:F34), Kuala Lumpur Kepong, TSH Resources and FGV Holdings.
  • The market is ignoring the fact that palm oil price is still higher y-o-y and is set to provide earnings recovery for upstream palm oil planters.





William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-03-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.810 SAME 0.810
BUY MAINTAIN BUY 1.990 SAME 1.990
BUY MAINTAIN BUY 4.600 SAME 4.600



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