Regional Plantations - Maybank Kim Eng 2020-04-13: Seasonally Higher March Stockpile

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

Regional Plantations - Seasonally Higher March Stockpile

Prefers SMID caps

  • MPOB’s Mar 2020 stockpile of 1.73mt (+2% m-o-m) remains tight as it was 41% lower y-o-y. Going forward, we expect seasonally higher output in the coming months to cap near term upside to CPO price. We are keeping our 2020-21 CPO ASP forecasts of MYR2,300/t (YTD spot price: MYR2,649/t) and MYR2,400/t.
  • We prefer heavily sold down SMID caps which trade at or near GFC trough PBVs. Our preferred BUY picks are KLK, First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), and SOP. SELL GENP for its lofty valuation.

Seasonally higher output driving up stockpile

  • Mar 2020 stockpile of 1.73mt was higher than market estimates of 1.65mt. The increase in stockpile is in part seasonal with higher m-o-m output (1.40mt; +8% m-o-m, -16% y-o-y) rising faster (in absolute terms) than exports (1.18mt; +9% m-o-m, -27% y-o-y). Meanwhile, domestic consumption was lower m-o-m at 0.26mt (-20% m-o-m, flat y-o-y).
  • The stronger m-o-m output and exports were lifted in part due to two additional calendar days in March (vs Feb). Stronger m-o-m March’s exports were recorded to most major destinations except China (-6% m-o-m, -14% y-o-y), India (-49% m-o-m, -97% y-o-y), Philippines (-19% m-o-m, +3% y-o-y), and the USA (-15% m-o-m, +29% y-o-y).

April stockpile estimated at 1.9mt, but still tight

  • The preliminary Malaysian export estimates for shipments in the first 10 days of April by Amspec and Intertek (independent cargo surveyors) indicate a -12%/-7% m-o-m decline to 308,224t / 312,900t respectively. Although it appears relatively weak compared to the same period a month ago, we believe it is too early to conclude the trend will persist into the rest of the month.
  • As for output, we believe April’s output will continue to grow m-o-m on seasonality factor and also upliftment of work suspension (effective 10 April) on six districts in Sabah (see Regional Plantations - Maybank Kim Eng 2020-03-31: 3 Additional Districts In Sabah Now Under COVID-19 Shutdown) that are not affected by COVID-19. By our preliminary estimates, April’s stockpile is likely to inch higher to ~1.9mt, but remains tight.

CPO price is seasonally lower in 3Q on higher output

  • We expect CPO price to trade between MYR2,100-2,400/t in 2Q20 before it trends seasonally lower in 3Q20 as output picks up, but strengthens towards end of the year. Our view is also echoed by CPO Futures curve. In recent week, CPO price has widened its discount against US soyoil (USD84/t on 9 Apr) but narrowed against rapeseed oil (USD256/t) as the latter which is predominantly used for biodiesel consumption is affected by weaker biodiesel demand given EU’s partial lockdown.
  • Just as we highlighted in our previous reports, discretionary demand for palm biodiesel is nearly non-existent now as palm oil price has been trading at a premium to gasoil since Nov 2019. Biodiesel demand will solely be reliant on government mandated blend.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-04-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850