FIRST RESOURCES LIMITED (SGX:EB5)
BUMITAMA AGRI LTD. (SGX:P8Z)
Regional Plantation Companies - Starting 2021 With Low Stock Level
- Starting 2021 with tight supply-demand balance.
- Demand held firm despite high prices in Dec 2020, importing nations focused on food security.
- Indonesia’s progressive export levies to keep biodiesel programme alive in 2021.
- First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and London Sumatra (LSIP) are our picks in Jan 2021, riding on Indonesia’s firm domestic CPO prices.
Stockpile downtrend continued in Dec 2020, laying path for strong start of CPO prices in 2021.
- Malaysia’s December 2020 CPO stockpile surprisingly dropped to 1.3m MT (-37% y-o-y, -19% m-o-m), as exports held firm despite the high prices, while production declined 11% m-o-m to 1.33m MT (flat y-o-y). This bodes well for a good start to 2021 as we believe the current high CPO prices will persist in short term amid tight supply for global edible oil markets.
Demand held firm despite price spike.
- Malaysia’s December 2020 CPO exports reached 1.6m MT (+16% y-o-y, +25% m-o-m), led by India. We believe importing countries are focusing on food security amid La Nina weather conditions in major producing nations and the persistent COVID-19 pandemic.
Indonesia’s progressive export levies to keep biodiesel programme alive in 2021.
- Indonesia’s progressive export levies will keep its CPO fund balance in check and biodiesel program alive in 2021. Indonesia aims to blend 8m KL-9.2m KL of biodiesel in 2021 vs. our forecast 6.5m KL. London Sumatra (LSIP) in our Pulse of Asia conference stated that January 2021 export levies plus tax could reach US$300 per MT if CPO prices stay at around US$1,000 per MT, still leaving US$700 per MT of CPO price net for upstream planters (FY21 CPO price forecast US$617 per MT).
First Resources, Bumitama Agri Resources, and London Sumatra benefiting from high CPO prices.
- We gather that Indonesia’s CPO planters are still benefiting from high CPO prices despite the progressive levy scheme. Thus, we believe that investors should accumulate First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and London Sumatra (LSIP) shares.
- The upcoming catalysts for these players will be their FY20 dividend announcements in February 2021.
William Simadiputra
DBS Group Research
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Woon Bing Yong
DBS Research
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Malaysia Research Team
DBS Research
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https://www.dbsvickers.com/
2021-01-11
SGX Stock
Analyst Report
1.700
SAME
1.700
0.660
SAME
0.660
