Regional Plantations - Maybank Kim Eng 2020-06-11: May Stockpile Beat Street Estimates 

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

Regional Plantations - May Stockpile Beat Street Estimates 

Aided by higher exports and domestic consumption

  • Higher m-o-m exports and stronger domestic consumption, coupled with flattish m-o-m production have kept MPOB’s May stockpile flattish m-o-m at 2.03mt (-17% y-o-y). The CPO price risk remains on the downside as we enter into seasonally higher production months in 2H20.
  • We maintain our MYR2,300/t CPO ASP forecast for 2020, and sector NEUTRAL call.
  • Preferred BUYs remain with First Resources (SGX:EB5)Bumitama Agri (SGX:P8Z), Sarawak Oil Palms, Ta Ann and Boustead Plantation. SELL Genting Plantations and IOI Corp on rich valuations.

May stockpile stayed flat m-o-m at 2.03mt

  • MPOB’s May 2020 stockpile of 2.03mt came in lower than street estimates of 2.22mt. The flattish m-o-m stockpile was due to higher exports of 1.37mt (+11% m-o-m, -20% y-o-y) and sharply higher domestic consumption (0.33mt; +109% m-o-m, flat y-o-y), while production was flat m-o-m at 1.65mt (-1% y-o-y).
  • Stronger m-o-m exports in May were recorded to all major destinations except EU (-27% y-o-y, -26% m-o-m) and Turkey (-25% m-o-m, -36% y-o-y). We believe the stronger m-o-m exports and domestic consumption are likely due to pent up demand post COVID-19 lockdown.

Strong prelim export indicator for early June

  • The preliminary Malaysian export estimates for shipments in the first 10 days of June by Amspec and Intertek (independent cargo surveyors) indicate a strong 60%/62% m-o-m increase to 550,341t / 545,360t respectively. This is a positive indicator and will help keep stockpile increase in check in anticipation of rising palm oil production in the coming months.
  • While it is still early to conclude that such strong growth trend is sustainable for the rest of June, the recent CPO export duty exemption (till Dec-2020) given by the government of Malaysia will surely help boost exports to India, the world’s biggest importer of palm oil. By our preliminary estimates, June’s stockpile is likely to inch higher to ~2.13mt.

CPO price will likely trend lower in 3Q20

  • We maintain our view that CPO price will continue to trade between MYR2,000-2,400/t in 2Q20 before it trends seasonally lower in 3Q20 as output picks up seasonally. Thereafter CPO price should pick up again towards year end. The CPO Futures curve is now in backwardation for the near months, echoing our view.
  • Positively, over the past month, the Brent crude oil price rally has lifted sentiment towards CPO price too. Nonetheless, we note that the recent CPO price gain has narrowed its discounts vis-a-vis Argentina soyoil (USD149/t), US soyoil (USD68/t) and Germany rapeseed oil (USD349/t). Hence, the near term CPO price risk is now on the downside especially if stockpile rises quickly in the upcoming seasonally high production months.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-06-11
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