Regional Plantations - Maybank Kim Eng 2020-09-10: Still Tight August Stockpile

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

Regional Plantations - Still Tight August Stockpile

Wary of 4Q price outlook on likely strong output

  • August’s strong production was matched (in absolute terms) by high domestic consumption and still decent exports which resulted in flattish m-o-m stockpile at 1.7mt. August’s CPO ASP of MYR2,818/t (+10% m-o-m, +35% y-o-y) reflected the tight stockpile situation. As we expect industry’s output to peak in 4Q (particularly Indonesia’s output), we expect a steep CPO price correction to follow.
  • Our sector NEUTRAL call is unchanged.
  • BUYs remain with First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z), Sarawak Oil Palms and Boustead Plantations.
  • SELL IOI Corp and Genting Plantation.

August stockpile remained low at 1.7mt

  • MPOB’s Aug 2020 stockpile of 1.70mt (flat m-o-m, -24% y-o-y) came in below street estimates of ~1.8mt. The flattish m-o-m stockpile was mainly due to higher output of 1.86mt (+3% m-o-m, +2% y-o-y) that was matched (in absolute terms) by a combination of exports of 1.58mt (-11% m-o-m, -9% y-o-y) and domestic consumption of 0.31mt (+13% m-o-m, flat y-o-y).
  • August’s exports appear to have normalized after the pent-up demand post COVID-19 lockdown which boosted exports in the months of June and July. Weaker m-o-m August exports were recorded across all major destinations especially to Turkey (-70% m-o-m, -66% y-o-y), Pakistan (- 48% m-o-m, -45% y-o-y), Bangladesh (-46% m-o-m, -85% y-o-y), and India (-28% m-o-m, -40% y-o-y). The exceptions were exports to China (+2% y-o-y, - 1% m-o-m), and Others (+13% m-o-m, +46% y-o-y).

Prelim. estimate for Sept exports on track for 1.5mt

  • The preliminary Malaysian export estimates for shipments in the first 10 days of Sept by Amspec and Intertek (independent cargo surveyors) were 472,780t / 470,925t (+9.9% / +10.3% m-o-m). While appearing positive at first glance, the absolute export figure, when calendarised for the month of September, is on track to be in the region of ~1.5mt.
  • By our preliminary ests., Sept’s stockpile is likely to inch higher to ~1.85mt.

Peak output likely in 4Q20; to pressure CPO price

  • One of the key takeaways from the few corporate briefings held in August was a possible delay in crop recovery in Indonesia to 4Q20 (from 3Q20), due to the lagged effects of a mini drought in 2019.
  • Crop output has been relatively weak in Indonesia (particularly Kalimantan) in 3Q20 and this has been a key reason for the lofty CPO ASP QTD. In Malaysia, Sabah planters also guide for a late bloom in output to 4Q20.
  • If 4Q20 output turns out better-than-expected for both Malaysia and Indonesia, this may lead to a sharp correction in CPO price over the next 3 months. Conversely, a lower-than-expected 4Q20 output will mean CPO price will be well supported.
  • Our base case view is a strong 4Q20 output and a steep price correction. Hence, we maintain our 2020/21 CPO ASP forecasts of MYR2,400 / 2,400/t (2020 YTD: MYR2,554/t spot).

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-09-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.790 SAME 1.790