Regional Plantation Companies - DBS Research 2021-03-10: High Edible Oil Prices To Persist

WILMAR INTERNATIONAL LIMITED (SGX:F34) BUMITAMA AGRI LTD. (SGX:P8Z) FIRST RESOURCES LIMITED (SGX:EB5)

Regional Plantation Companies - High Edible Oil Prices To Persist

Thin supplies and export rebound prospects to keep edible oil prices buoyant moving ahead.
Feb 21 Malaysia palm oil stockpile retreated to near Dec 20 level again.
Meanwhile, oil price uptrend is positive for Indonesia’s B30 programme.
We like London Sumatra (LSIP) for firm domestic CPO prices, as well as Wilmar (SGX:F34), First Resources (SGX:EB5) and Bumitama Agri (SGX:P8Z) for their undemanding valuations.

Malaysia’s Feb 21 CPO stockpile retreated 2% m-o-m to 1.3m MT (-23% y-o-y) due to weaker-than-expected output of 1.1m MT (-14% y-o-y, -1.9% m-o-m), even as exports retreated by 5% m-o-m to 895k MT (-17% y-o-y). Stockpile is expected to stay low in March 21, thus supporting CPO prices in upcoming months.

Since the stockpile level of the major buyer countries is still relatively low at the end of Jan 21 amid recovering consumption and tight supplies, we believe that global demand will bounce back further despite the now firm CPO prices.
Meanwhile, Indonesia’s B30 programme made a good start in Jan with monthly production of ~700k KL per month vs our estimate 500k KL per month in 2021– thanks to the availability of CPO Fund and improving crude oil prices.

The share price performance of Singapore and Indonesia CPO planters was mixed in the wake of 4Q20 results, with London Sumatra (LSIP) and Bumitama Agri (SGX:P8Z) ahead our expectations. We believe that investors have discounted the planters’ 1H21 earnings performance, as some of them have hedged their positions in 4Q20, coupled with higher export levies that could limit their potential upside.
Our overall earnings and valuation are pegged to an ASP of US$570-600 per MT in 2021 (FY21 CPO price forecast of US$617 per MT).
We reiterate our BUY calls for First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z) and London Sumatra (LSIP).
We also like Wilmar (SGX:F34) for its end-to-end food producing platform and apparent undervaluation.