Agribusiness - CGS-CIMB Research 2020-06-11: Restocking Activities Led To Lower Stocks

Agribusiness - CGS-CIMB Research | SGinvestors.io FIRST RESOURCES LIMITED (SGX:EB5) WILMAR INTERNATIONAL LIMITED (SGX:F34) GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Agribusiness - Restocking Activities Led To Lower Stocks

  • Malaysian palm oil stocks surprisingly fell by 0.5% m-o-m to 2.03m tonnes, against expectations of a m-o-m rise, due to higher exports and local usage.
  • We project palm oil stocks to be flattish in Jun, as exports offset output.
  • The lower stocks and recent moves to reinforce B30 mandates in Indonesia are supportive of CPO price. Maintain Neutral and Genting Plantations as our top pick.



Why palm oil stocks were below expectations in May

  • Malaysia's palm oil stocks fell 0.5% m-o-m to 2.03m tonnes in May 2020, due mainly to higher exports and domestic usage, which we suspect could be due to restocking activities by consumers as the economy slowly reopened after the lockdown in Apr. The stock level was 11% below our forecast due mainly to a sharp 109% m-o-m rise in local usage and higher-than-expected exports due to restocking activities and partly due to lower-than-expected output.
  • The May stockpile was also 8-10% below Reuters’ poll and Bloomberg consensus forecasts of 2.25m and 2.22m tonnes, respectively, due to higher-than-expected exports and domestic usage. This is supportive of near-term CPO prices.


Flattish m-o-m production in May despite the Raya (Eid) break

  • CPO production was flattish m-o-m despite the Raya (Eid) break as estates workers stayed in the country during the festivities as the Malaysian border was closed due to Covid-19. CPO output narrowed its losses on a y-o-y basis to 1% and this is potentially a sign of a recovery in yields that were previously impacted by lower fertiliser application and the dry weather.
  • 5M20 CPO production fell 13% y-o-y to 7.16m tonnes on weak 1Q production. However, we deem this in line with our full-year forecast of 19.1m tonnes (-4.4%) as 5M20 accounted for 37% of our full-year forecast (vs. historical average of 38%).


Restocking in China helped boost export figures in May

  • Palm oil exports grew 11% m-o-m but fell 20% y-o-y to 1.37m tonnes in May 2020, possibly mainly due to restocking activities by China, and improved demand from India from a very low base. We expect restocking activities to continue in Jun and Jul in view of zero export tax in Malaysia and low palm oil stock levels in China and India.


Stocks preview for Jun 2020F

  • We project palm oil stocks to be flattish at 2.03m tonnes as at end-Jun 20F as output is expected to fall by 1%, while exports are expected to continue to rise by 5% m-o-m on restocking activities.


Replenishment of stocks to help offset rising supply

  • CPO price has recovered 18% from its YTD low this year of RM2,021/tonne due to improved optimism on stronger exports in the coming months as consuming countries replenish stocks to cater for festivals in Aug, and Indonesia reinforces the B30 mandates through a series of measures. This will be key to keeping stocks in check as we head into the peak production season.
  • We expect CPO prices to trade in the range of RM2,200- 2,500 per tonne in Jun, and at an average of RM2,300 per tonne for 2020F.





Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-11
SGX Stock Analyst Report ADD MAINTAIN ADD 1.800 SAME 1.800
ADD MAINTAIN ADD 4.580 SAME 4.580
REDUCE MAINTAIN REDUCE 0.117 SAME 0.117



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