Regional Plantation - Maybank Research 2022-03-21: A More Palatable Export Tax Hike; Maintain NEUTRAL On The Sector

Regional Plantation - Maybank Research | SGinvestors.io BUMITAMA AGRI LTD. (SGX:P8Z) FIRST RESOURCES LIMITED (SGX:EB5)

Regional Plantation - A More Palatable Export Tax Hike; Maintain NEUTRAL On The Sector

  • Indonesia’s new CPO export levy is overall net negative to growers (i.e. lower net receipt) if CPO price stays > US$1,100/t. Clear winners are refiners in Indonesia as the differential export taxes widen at higher price levels.
  • Overall, the earnings impact for stocks under our coverage are likely to be muted as our CPO ASP for 2022-23 are below US$1,100/t. We make no changes to our EPS forecasts.
  • The removal of export curbs by Indonesia may pressure global CPO prices in the near term.
  • Preferred BUYs: KL Kepong, Ta Ann & Bumitama Agri (SGX:P8Z).

Maximum export taxes at US$575/t, not US$675/t

  • Despite earlier proposal to raise the maximum CPO export levy and duties to US$675/t (from US$375/t), the final legislated maximum hike in export levy and duties was just US$575/t.
  • Basically, for every US$50/t increase in CPO price, the export levy will be raised by US$20/t until it reaches the new maximum rate of US$375/t. Coupled with prevailing export duty of US$200/t, the maximum export taxes are US$575/t when international CPO price hits US$1,500/t or above.
  • Recall that yesterday, the Indonesian government surprised the market with a proposal to hike export taxes in its bid to raise more funds to help resolve the shortage of domestic cooking oil ahead of the Lebaran festivities. The Indonesian government is allocating IDR7.28tr (~US$500m) from the palm oil exports levy to subsidise the bulk and unbranded cooking oil. Each month, about 202m liters of cooking oil will be subsidized for 6 months to keep prices at or below IDR14,000/liter.

Impact on growers is more muted than earlier est.

  • We believe the new export levy and direct subsidy of bulk cooking oils are more effective in resolving the shortage of domestic cooking oil on the shelves. Based on our calculation, the theoretical net CPO ASP receipts of Indonesian growers under this new regulation will not be significantly worse off or better off than the net CPO receipt based on the old export levy plus 30% DMO (domestic market obligation at Rp9,300/kg domestic price obligation).
  • Under the previous structure, the Indonesian growers are potentially worse off by up to US$85/t (or -8%) if international prices stay above US$1,100/t. Conversely, growers are potentially better off by up to US$30/t (+4%) when international CPO prices are between US$700-1,100/t.

Refining margins likely better at higher levels

  • While upstream players (i.e. growers) are generally worse off at higher price levels (i.e. lesser net receipt after taking off the export taxes), the downstream players will be better off as the differential margins (between CPO and RBD Palm Olein) widen at high price levels.
  • However, the exception is RBD Palm Oil product as the government has raised the tax levy of RBD Palm Oil at all price levels. As such, by our estimate, at CPO price below US$1,100/t, the refiners will be better off maximizing profits by selling more RBD Palm Olein than RBD Palm Oil.

Ong Chee Ting CA Maybank Research | https://www.maybank-ke.com.sg/ 2022-03-21
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