Regional Plantations - DBS Research 2020-06-10: Regaining Traction

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

Regional Plantations - Regaining Traction

  • Import resumption from India reinstalls confidence on palm oil price.
  • Indonesia resumes US$55 per MT export levy to support biodiesel programme.
  • Expecting prices to stabilize – unless output unexpectedly fall m-o-m in June.
  • BUY calls on laggards First Resources (SGX:EB5), London Sumatra, Bumitama Agri (SGX:P8Z), TSH Resources and KL Kepong.

Malaysia’s palm oil stockpile buffered by export performance, flat m-o-m output trend.

  • Malaysia’s palm oil stockpile stood flat m-o-m at 2.0m MT (-17% y-o-y) in June after India’s import resumption, which lifted m-o-m export volume by 11% to 1.37m MT (-20% y-o-y) , coupled with m-o-m flat production of 1.65m MT (-1% y-o-y). We expect stockpile to remain at around 2.0m MT in June, on continuous export recovery.
  • Meanwhile, output is expected to remain flat y-o-y in upcoming months as this year’s yield is likely to be affected by the previous two years’ cost efficiencies.

Demand to track the progress of major buyers’ economic reopening.

  • The resumption of economic activities in India has been the key catalyst for palm oil price in the past two weeks. India’s imports had been low even before the COVID-19 economic lockdown due to high palm oil price in 4Q19. This opens up prospects for the import trend to continue recovering in upcoming months.
  • Meanwhile, exports to China and EU are expected to remain steady ahead, on higher demand prospects from non-household consumption by hotels, restaurants, caterers, etc.

Reintroduction of Indonesia’s export levy to support B30 programme, firmer crude oil price also helps.

  • The Indonesian government recently announced the resumption of its US$55 per MT export levy, in view of the firm underlying demand. We believe the key intention for this is to top up the CPO Fund to sustain the Biodiesel programme for as long as possible.

Focus on laggards.

  • We prefer CPO companies whose share price performance has not fully captured the recovering palm oil price from May onwards. First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), London Sumatra, TSH Resources and KL Kepong are among them.
  • We believe that investors are still concerned about how the palm oil price trend can be sustained, as share prices have yet to rebound back to their early year levels.

William Simadiputra DBS Group Research | Jin Wu LOW DBS Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-06-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.700 SAME 1.700