Regional Plantation Companies - DBS Research 2020-10-12: Buoyant Prices Until Yearend

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

Regional Plantation Companies - Buoyant Prices Until Yearend

  • Malaysia’s CPO stockpile held up well in September 2020.
  • Exports remained firm despite rising prices.
  • La Nina – a friend or foe?
  • Top BUYs – First Resources (SGX:EB5) Wilmar (SGX:F34), Lonsum (LSIP) and KL Kepong (KLK).

Stockpile stayed firm at c.1.7m MT in Sept 2020.

  • Malaysia’s Sep 2020 palm oil stockpile was relatively stable m-o-m at 1.72m MT (-30% y-o-y, +1% m-o-m), thanks to stable output of 1.87m MT (+1% y-o-y, flat m-o-m) and despite being in the seasonally high production period of the year.
  • On the back of the stable stockpile level in Sep and Indonesia’s steady biodiesel blending demand, we believe the current CPO price rally has legs and are likely to remain buoyant until end- 2020.

Exports: Low stockpile in importing countries to support demand.

  • Exports surprisingly held well up despite the strong prices, reaching 1.6m MT (+14% y-o-y, +2% m-o-m) in Sept. India’s imports will likely to remain firm (even as Deepavali approaches) and the same goes for China due to low CPO stockpile levels in both countries. In the case of China, a strengthening yuan may help to sustain its palm oil appetite for the rest of the year.

La Nina – a friend or foe?

  • While La Nina-induced heavy rains may disrupt the chain of supply (from fruit harvesting to milling) and thus hinder any production expansion in 2H20, such heavy rainfall can help nourish the land and likely to boost output in 2021. As such, we believe our CPO price forecast of US$617 per MT for next year will hold, on expectations that supply will normalise next year – unless the current supply disruption caused by non-weather factors in Indonesia persists until next year.

3QCY20 performance will be cushioned by buoyant prices.

  • CPO prices averaging US$663 per MT (+33% y-o-y, +26% q-o-q) will be the key earnings recovery driver in 3QCY20, as output will largely be impacted by dry weather and this is reflected in industry statistics so far. Indonesian planters will be the first to report their 3Q20 numbers, i.e. by the end of Oct.
  • Meanwhile, we believe that most CPO stocks have yet to price in an average CPO price of > US$600 per MT due to concerns over a more sustainable economic recovery next year.
  • Our top BUYs are First Resources (SGX:EB5) Wilmar (SGX:F34), Lonsum (LSIP) and KL Kepong (KLK).
  • See regional plantation companies peer comparison table in PDF report attached below.

William Simadiputra DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-10-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.700 SAME 1.700