Regional Plantations - Maybank Kim Eng 2020-08-11: Strong Exports & Low Stockpile Lifted July CPO Price

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

Regional Plantations - Strong Exports & Low Stockpile Lifted July CPO Price

Malaysia’s July stockpile at 37-month low

  • Malaysia’s strong July exports which nearly matched output lowered m-o-m stockpile to 1.7mt; at 37-month low. This was reflected in higher July CPO ASP of MYR2,568/t (+6% m-o-m, +36% y-o-y). Even though current CPO price is unsustainable and likely to trend lower in the coming weeks, we raised our 2020 CPO ASP forecast to MYR2,400/t (+4.3%) as YTD-price has averaged MYR2,510/t.
  • Our sector NEUTRAL call is unchanged.
  • BUYs remain with First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), SOP, Ta Ann and Boustead Plantations. SELL IOI Corp and Genting Plantation.

Strongest exports in 47 months kept stockpile low

  • MPOB’s July 2020 stockpile of 1.70mt (-11% m-o-m, -29% y-o-y) came in broadly within street estimates of 1.67mt. The lower m-o-m stockpile was mainly due to strong exports of 1.78mt (+4% m-o-m, +20% y-o-y) which combined with lower domestic consumption of 0.28mt (-22% m-o-m, flat y-o-y) more than offset July’s strong output of 1.81mt (-4% m-o-m, +4% y-o-y).
  • July’s exports were strongest in 47 months. The zero CPO export duty and pent-up demand post COVID-19 lockdown boosted exports, especially to India (0.46mt; +85% m-o-m, -1% y-o-y).
  • Stronger m-o-m exports were also recorded to all major destinations except Bangladesh (-86% y-o-y, +89% m-o-m), China (-18% m-o-m, +216% y-o-y), Pakistan (-12% m-o-m, +42% y-o-y), Philippines (-4% m-o-m, +24% y-o-y), Vietnam (-39% m-o-m, -39% y-o-y) and Others (-12% m-o-m, +4% y-o-y).

Exports to normalise in August?

  • The preliminary Malaysian export estimates for shipments in the first 10 days of August by Amspec and Intertek (independent cargo surveyors) at 429,937t / 426,797t (-6.2% / -4.8% m-o-m) appears to suggest that pent up demand recorded in June-July 2020 post COVID-19 lockdown may be over.
  • Still, it could be premature to conclude that such trend will persist throughout August. By our preliminary estimates, August’s stockpile is likely to inch higher to 1.9mt.

Delay in crop recovery led to higher CPO price f’cast

  • There is increasing chatter that Indonesia’s July output was very weak (perhaps in part due to recent wet weather) which aided Malaysia’s exports. With Indonesia’s peak output likely delayed somewhat coupled with the present low stockpile in Malaysia, CPO spot price will likely to be well supported at ~MYR2,500/t in August.
  • Still, we expect CPO price to weaken thereafter when output peaks between September and November. CPO spot price is now trading at narrowed discounts of USD27/t to US soyoil (historical average discounts: USD150/t). Hence, CPO needs to be priced competitively vis-à-vis competing vegetable oils in the coming weeks especially when US soybean harvest season starts in September / October. However, the strong CPO price at the start of 2H20 has prompted us to conservatively raise our 2020 CPO ASP to MYR2,400/t (from 2,300/t; YTD average: 2,510/t).
  • Our 2021’s CPO ASP forecast is unchanged at MYR2,400/t. However we will only make revisions to our EPS forecasts at the upcoming August results season or upon fresh guidance by corporates on their revised output expectations.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-08-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850