Regional Plantations - Maybank Kim Eng 2020-03-31: 3 Additional Districts In Sabah Now Under COVID-19 Shutdown

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

Regional Plantations - 3 Additional Districts In Sabah Now Under COVID-19 Shutdown


Output decline so far compensated by higher price

  • Suspension of work in Sabah extended by 14 days, and also expanded to 6 districts (from3). But this is unlikely to have a material impact on the earnings of companies under our coverage as most are well diversified across different regions and 1M CPO Futures has risen by 4.2% DoD / 10.3% WoW to MYR2,591/t to compensate for the output loss.
  • While our 12M NEUTRAL sector view is unchanged, values have emerged among the SMID caps, which trade at or near GFC trough PBV (see our report: Regional Plantations - Maybank Kim Eng 2020-03-11: Value Re-emerging In Small/Mid Caps).
  • Our preferred BUYs are KLK, First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and SOP. SELL GENP.



Suspension of operation in Sabah extended to 14 Apr

  • Reuters reported Sabah has extended a shutdown order for palm oil operations to 6 districts. In addition to earlier suspension in Tawau, Lahad Datu and Kinabantangan (TLDK), oil palm plantations and mills in Kalabakan, Semporna and Kunak are now also ordered to close until 14 April to contain the spread of COVID-19.


Sabah accounted for 6.6% of 2019 global PO output

  • As we reported last week: Regional Plantations - Maybank Kim Eng 2020-03-25: Operations At 3 Districts In Sabah Affected By COVID-19, the Sabah state produced about 5.0mt of CPO in 2019, which represents 26% of Malaysia’s total production and 6.6% of global palm oil (PO) output. The six districts in Sabah are major producing areas (note that Kalabakan is located near Tawau, according to Google) although we do not have their individual breakdowns.
  • Sabah’s total oil palm planted area was 1.544m ha in 2019, with a number of PLCs having operations in Sabah. They include HAPL MK (100% of group’s total oil palm planted area; Not Rated), IOI MK (63%; HOLD), BPLANT MK (53%; BUY), IJMP MK (41%; Not Rated), GENP MK (31%; SELL), FGV MK (31%; Not Rated), KLK MK (17%; BUY), THP MK (15%; BUY), TSH MK (15%; BUY) and SDPL MK (8%; HOLD) by our estimates.
  • Companies under our coverage that are not in Sabah include SOP MK (BUY) and TAH MK (BUY). At the time of publication, GENP, KLK and THP responded by saying that their affected areas represent 16%, 15% and 12% of group’s planted area.
  • By our estimate, HAPL, IOI, FGV, BPLANT, TSH and SDPL’s affected areas are 95%, 37%, 31%, 19%, 15% and 4% of group respectively while IJMP’s estates are located outside the affected districts.


Impact remains immaterial for now

  • Mathematically, the 15-day suspension (31 Mar-14 Apr) equates to 4.1% of 2020’s potential output loss for the affected estates. For TLDK, the extended suspension means 21 days of lost productivity or 5.7% of potential output loss. This is mitigated by diversified exposures in other districts, states or countries of most companies under coverage (as highlighted above).
  • Moreover, CPO price has reacted positively to this work suspension. Share prices of most plantation stocks remained depressed due to COVID-19 fear and as such, we think the impact has been largely priced in after recent sell-down.
  • Key beneficiaries from this suspension are companies with little to no exposure to Sabah, which include SOP, TAH, and listed peers in SGX (First Resources (SGX:EB5) and Bumitama Agri (SGX:P8Z)) and IDX.





Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-03-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850
BUY MAINTAIN BUY 0.780 SAME 0.780



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