Regional Plantations - Maybank Kim Eng 2021-01-12: Export Rush Before 8% CPO Duty Kicks In W.e.f 1 Jan

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

Regional Plantations - Export Rush Before 8% CPO Duty Kicks In W.e.f 1 Jan

CPO price to stay lofty on seasonally low Q1 output

  • MPOB’s December stockpile is at 13-year low due to a rush to export duty-free CPO before end-2020. A low brought forward stockpile and low 1Q21 seasonal output, worsen by recent heavy rainfall, will likely keep CPO price lofty in 1Q21 to ration demand. Ongoing weather concern presents upside risk to our MYR2,500/t CPO ASP forecasts for 2021.
  • Maintain POSITIVE call on the sector as small-mid cap stock prices have lagged CPO price rally.
  • Preferred BUYs: First Resources (SGX:EB5), Kuala Lumpur Kepong, Sarawak Oil Palms and Boustead Plantations.

Dec 2020 stockpile at 13-year low

  • MPOB’s December (Dec) 2020 stockpile of 1.26mt (-19% m-o-m, -37% y-o-y) came in within estimates surveyed by Reuters. The sharply lower m-o-m stockpile was due to strong exports of 1.62mt (+25% m-o-m, +16% y-o-y) as the market took the opportunity to export more CPO (0.73mt; +93% m-o-m, +165% y-o-y – Fig.15) before the CPO export duty exemption ended on 31 Dec 2020.
  • Meanwhile output continues to contract seasonally to 1.33mt (-11% m-o-m, flat y-o-y). Had it not been for the jump in imports of 0.28m (+150% m-o-m, +129% y-o-y), Dec stockpile would have been even lower. Dec’s domestic consumption was lower at 0.28mt (-8% m-o-m, -5 y-o-y).
  • On exports, higher m-o-m exports were recorded to all key destinations except China (-51% m-o-m, -42% y-o-y), EU (-24% m-o-m, -4% y-o-y), Pakistan (-29% m-o-m, -47% y-o-y), and Vietnam (-74% m-o-m, -77% y-o-y).

Jan’s 8% or MYR278/t CPO duty = lower exports

  • The preliminary Malaysian export estimates for shipments in the first 10 days of January by Amspec and Intertek (independent cargo surveyors) were 271,789t / 260,080t (-35%/-35% m-o-m) respectively. The slow start to the year is understandable as exporters exported as much CPO as possible in Dec to enjoy the CPO duty exemption in order to avoid the re-imposition of CPO duty of 8% (or MYR278/t) on 1 Jan 2021.
  • Moreover, December’s stockpile was simply too tight, equivalent to 3- weeks of supply just as the industry enters into its seasonally lowest output period of the year. In addition, the heavy rainfall experienced in certain producing States in Malaysia is disrupting operations and harvest.

2020 CPO ASP was +31% y-o-y at MYR2,782/t

  • For 2020, there was a drawdown of 0.75mt in Malaysian stockpile during the year as weak output of 19.1mt (-4% y-o-y), hurt by biological tree rest, more than offset even weaker exports (-6% y-o-y). This led CPO spot price to end-2020 at MYR3,788/t (+25% y-o-y), and for 2020 ASP, CPO averaged MYR2,782/t (+31% y-o-y).
  • The present tight palm oil supply will help sustain CPO price parity with US soyoil in 1Q21, as well as keep CPO price discounts to other key vegetable oils below historical averages for the time being. Thereafter new supplies of oils and oilseeds from South American harvest will start to pressure CPO price on the downside.
  • Nonetheless, the present risk to our 2021 CPO ASP forecast of MYR2,500/t is on the upside. Our forecast has yet to factor in
    1. any significant crop failure in the ongoing South American soybean planting season,
    2. crude oil price staging a massive rally, and
    3. worse-than-expected palm oil output recovery in 2021.

Ong Chee Ting CA Maybank Kim Eng Research | 2021-01-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.960 SAME 1.960