Regional Plantations - Maybank Kim Eng 2020-05-13: Stockpile At 5-month High

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

Regional Plantations - Stockpile At 5-month High

Low CPO price more than priced in in SMID caps

  • Surprisingly strong output coupled with relatively weak exports and domestic consumption led to a sharp build-up in April stockpile. In the coming months, stockpile will trend higher as we enter into seasonally higher production months which may cap near term CPO price upside.
  • Meanwhile, its downside is limited by the recent price rebound of competing vegetable oils. We are keeping our 2020 CPO ASP forecasts of MYR2,300/t (YTD spot price: MYR2,543/t).
  • We prefer heavily sold down SMID caps which trade at or near GFC trough PBVs (See Fig22-34 in attached PDF report).
  • Our preferred BUY picks are Kuala Lumpur Kepong, First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), and Sarawak Oil Palms. SELL Genting Plantations.

April stockpile goes above 2.0mt

  • Apr 2020 stockpile of 2.05mt (+18% m-o-m, -25% y-o-y) was higher than market estimates of 1.90mt. The increase in m-o-m stockpile was partly seasonal as the jump in m-o-m output (1.65mt; +18% m-o-m, flat y-o-y) was not matched by exports growth (1.24mt; +4% m-o-m, -25% y-o-y) while domestic consumption dipped m-o-m to 0.16mt (-40% m-o-m, flat y-o-y) as the latter was affected by the partial lockdown in the country – See Fig1 in attached PDF report.
  • April’s m-o-m exports growth were recorded to most major destinations except Pakistan (-8% m-o-m, -20% y-o-y), Philippines (-11% m-o-m, -23% y-o-y), Turkey (-5% m-o-m, +14% y-o-y), USA (-17% m-o-m, +48% y-o-y), Vietnam (-9% m-o-m, -23% y-o-y) and Others (-3% m-o-m, +3% y-o-y) – See Fig2 in attached PDF report.

Preliminary May export estimates promising

  • The preliminary Malaysian export estimates for shipments in the first 10 days of May by Amspec and Intertek (independent cargo surveyors) indicate a 12%/8% m-o-m increase to 344,983t / 337,255t respectively. This is a positive indicator given the recent increase in April stockpile. We think this trend is sustainable given the present low CPO price and as more importing countries reopen their borders/ economies after recent COVID-19 lockdown, and the need to restock.
  • By our preliminary estimates, May’s stockpile is likely to inch higher to ~2.2mt.

CPO price is price competitive again at current level

  • We now expect CPO price to trade between MYR2,000-2,400/t (previously MYR2,100-,2400/t) in 2Q20 before it trends seasonally lower in 3Q20 as output picks up. But CPO price should strengthen again towards end of the year. Our view is also echoed by CPO Futures curve (Fig35 in attached PDF report).
  • Positively, over the past month, CPO has regained its price competitiveness as its discount has widened against Argentina soyoil (USD199/t), US soyoil (USD122/t) and Germany rapeseed oil (USD368/t) – See Fig10-13 in attached PDF report. This implies limited downside risk to CPO price in the immediate term.
  • Nonetheless, we reiterate our view that 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 (Fig9). Biodiesel demand will solely be reliant on government mandated blend.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-05-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850