Regional Plantations - DBS Research 2021-05-11: Current Price Rally Has Legs

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

Regional Plantations - Current Price Rally Has Legs

Malaysia Apr 2021 stockpile climbed 8.6% m-o-m to 1.55m MT, but this still trailed our initial estimate.
Exports surged 13.2% m-o-m – a sign of robust demand amid high prices.
CPO prices to remain strong with resumption of Indonesia’s B30 programme and firm demand.
Our picks are First Resources (SGX:EB5), London Sumatra, Bumitama Agri (SGX:P8Z) and Wilmar (SGX:F34) in view of robust CPO prices and strong edible oil demand.

Malaysia’s CPO stockpile rose 8.6% m-o-m to 1.55m MT (-24.4% y-o-y), which is still behind our initial estimate. While CPO output climbed by 7% m-o-m (but dropped by 8% y-o-y) to 1.52m MT, exports managed to rebound by 13% m-o-m to 1.34m MT (+8% m-o-m). Considering the prices of alternative edible oils and CPO production trend, we expect the currently firm prices to persist at least until the end of 1H21.

We expect CPO demand to remain resilient despite the high prices and surge in COVID-19 cases in India, in light of the major importers’ low stockpile levels We believe that India will not impose restrictions on imports despite its tighter edible oil inspection policies, as India appears to have a relatively low edible oil stockpile level.
In Indonesia, demand for CPO biodiesel will remain strong in view of rising crude oil prices and CPO fund availability (thanks to its progressive export levies). We think that Indonesia will keep its export levies at least in 1H21 amid robust CPO prices.

While Wilmar (SGX:F34) saw a strong start to 2021, Bumitama Agri (SGX:P8Z) and First Resources (SGX:EB5) will only report their 1Q21 earnings this week. We believe investors are concerned over how well the planters can capitalise on the tight edible oil market to ensure their earnings recovery this year – such fears have led to the lag in their share prices vs commodity prices.
In Indonesia, all eyes are on the recently listed planter Triputra Agro Persada (TAPG IJ) but we believe that London Sumatra’s (LSIP) valuations deserve some attention.

William Simadiputra DBS Group Research | Woon Bing Yong DBS Research | Malaysia Research Team DBS Research | https://www.dbsvickers.com/ 2021-05-11

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