Regional Plantation Companies - DBS Research 2020-07-10: Exports Continue To Recover

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WILMAR INTERNATIONAL LIMITED (SGX:F34) FIRST RESOURCES LIMITED (SGX:EB5)

Regional Plantation Companies - Exports Continue To Recover

• June 2020 stockpile dropped 6% m-o-m to 1.9m MT.
• Exports jumped 25% m-o-m to 1.7m MT, keeping stockpile at a low level.
• Expecting CPO price average RM2,450 per MT in 2H20.
• We like Wilmar (SGX:F34), First Resources (SGX:EB5), London Sumatra (LSIP) and KL Kepong (KLK).

Malaysia’s CPO stockpile slid below 2.0m MT again.

• The Malaysia Palm Oil Board (MPOB) reported a CPO stockpile of 1.9m MT (-21% y-o-y, -6% m-o-m), thanks to stronger-than-expected exports – thus squashing concerns of rising inventory due to a strong production cycle. June output continued to climb to 1.89m MT (+24% y-o-y, +14% m-o-m), and we expect this trend to continue but at a slower pace next month.

Exports to India hit 9-month high.

• Total CPO exports came in at 1.79m MT (+24% y-o-y, +25% m-o-m), with exports to India hitting a 9-month high at 242k MT (-43% y-o-y, +348% m-o-m). We believe this is mainly driven by palm oil inventory restocking after a period of low appetite since Sept 2019.
• Exports to China hit 351k MT (+227% y-o-y, +56% m-o-m), driven by the return of non-household vegetable oil demand as the Chinese economy reopened gradually, in our view.

2H20: Expect price to stabilise at current levels.

• CPO price has stabilised at around RM2,400-RM2,450 per MT after recovering from its May slump, and we expect current price levels to persist in 2H20. Global output is likely to remain flat y-o-y due to poor fertiliser application the last two years, and labour shortages in some areas of Indonesia.
• From a demand viewpoint, Indonesia is set to achieve its 8m KL biodiesel absorption target this year while the export market is expected to remain steady until the end of the year. The probability for CPO price to go above RM2,600 per MT is low currently, unless 2H20 output turns out to be worse than expected.

COVID-19 still dampens investor appetite for planters.

• Only Wilmar has performed well so far due to positive sentiment over the listing of its China operation, while the overall performance of palm oil stocks was relatively muted. See Wilmar Share Price. We believe that the market is waiting for better inventory data in August amid seasonally stronger output in 2H20, and the release of 2Q20 results next month.
• Besides Wilmar (SGX:F34), we also like and KL Kepong. 
• See PDF report attached below for peer comparison of regional plantation companies.

William Simadiputra DBS Group Research | Malaysia Research Team DBS Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-07-10

SGX Stock Analyst Report BUY MAINTAIN BUY 4.600 SAME 4.600

BUY MAINTAIN BUY 1.700 SAME 1.700