Regional Plantation Companies - DBS Research 2020-09-13: Supply-Driven Price Buoyancy

Regional Plantation Companies - DBS Research | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34) FIRST RESOURCES LIMITED (SGX:EB5)

Regional Plantation Companies - Supply-Driven Price Buoyancy

  • CPO stockpile stagnated m-o-m in August, even as exports dropped m-o-m.
  • Soft output to keep stockpile tight and prices firm.
  • Indonesia’s B30 biodiesel programme remains on track.
  • Lonsum (LSIP), First Resources (SGX:EB5) Wilmar (SGX:F34) and KL Kepong are our picks.


Stable m-o-m stockpile on flat output growth in August 2020.

  • Malaysia’s August 2020 palm oil stockpile was flat m-o-m at 1.7m MT (-24.5% y-o-y), successfully keeping the YTD average CPO price at US$604 per MT.
  • Output only expanded 3% m-o-m to 1.86m MT (+2 y-o-y) as we enter the seasonally high production period, while exports were hit by the high palm oil price of US$671 per MT in August.


China exports rose m-o-m, while EU and India’s slid.

  • Malaysia total exports dropped 11% m-o-m to 1.58m MT (-9% y-o-y), which we believe was driven by a narrower price gap between other edible oils after the surge in CPO prices. Exports to China rose 2% m-o-m to 295k MT (-4% y-o-y), but those to India and the EU slid 28% m-o-m and 6% m-o-m to 330k MT (-42% y-o-y) and 159k MT (+8% y-o-y) respectively.
  • Exports are likely to stay at 1.6m MT in the upcoming months, as India has started to restock its palm oil since May 2020.


B30 programme: 2020 plan on track and all eyes are on 2021.

  • Indonesia’s B30 blending is largely on track to achieve the government’s earlier 2020 target of 8.4m KL, with 5m KL being blended in 7M20. The next thing to watch is the government’s strategy for 2021, in light of the depleting CPO Fund and current oil price trend.

Firm CPO prices buoy 3QCY20 CPO ASP – FY20 CPO prices on track to meet our FY estimate.

  • We believe CPO prices will continue to be buoyed by the soft output trend across Indonesia and Malaysia until end-2020. We also retain our stock picks – First Resources and Wilmar (SGX:F34) in the Singapore-listed space; Lonsum (LSIP) for Indonesia, and KL Kepong for Malaysia. We believe these counters will benefit from higher y-o-y CPO prices, while for Wilmar, in particular, we reckon that now is an opportune time to accumulate its stock post share price correction.
  • At this juncture, we are sticking to the view that the market has yet to fully price in Wilmar’s transition into a consumer company.





William Simadiputra DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-09-10
SGX Stock Analyst Report BUY MAINTAIN BUY 5.280 SAME 5.280
BUY MAINTAIN BUY 1.700 SAME 1.700



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