Regional Plantations - Maybank Research 2022-04-25: 2Q22 Heightened Price Volatility On Indonesia’s Export Ban


Regional Plantations - 2Q22 Heightened Price Volatility On Indonesia’s Export Ban

Latest policy poses short-term earnings risk to Indonesia planters

  • Indonesia’s ban on palm oil exports will worsen the tightness in global edible oil supply. But we think the ban will be a short 1-2 months. Prices of edible oils will remain lofty in 2Q22 to ration demand. We expect Bursa Malaysia Derivative’s future CPO to trade higher (possibly retesting recent highs) while Indonesia’s domestic CPO price will gravitate towards subsidized cooking oil price if the ban stays.
  • Malaysia-based planters are clear winners. We expect short-term negative knee-jerk reaction on Indonesia planters.
  • We raise IOI Corporation to BUY but downgrade Ta Ann to HOLD following the latter’s outperformance.
  • Preferred BUYs: IOI Corporation & KL Kepong.

Excess supply in ID will lead to lower domestic prices

  • Last Friday, Indonesia’s President Joko Widodo decided to ban exports of cooking oil and its raw material from 28 April. The ban will be in place until Indonesia has an "abundant and affordable" supply of cooking oil. Little details were provided in his brief speech.
  • We take the view that the ban will likely be on CPO, RBD Palm Oil, and RBD Palm Olein which form the bulk of Indonesia’s production and exports.
  • Indonesia is projected to produce ~48mt of CPO in 2022 while domestic consumption is just ~18mt; comprising ~9mt of biodiesel and ~9mt of food use (mainly cooking oil). A ban on palm oil exports will mean an excess CPO of ~30mt in Indonesia (annually).
  • Without an export market, we anticipate the storage tanks to “overflow” within 1-2 months if the export ban stays. We believe Indonesia’s domestic CPO price should gravitate towards Indonesia’s subsidized cooking oil price (i.e. IDR14,000/liter; assuming this scheme is intact); down from present domestic CPO price of IDR16,563/kg or MYR4,971/t (21 Apr).
  • In contrast, we should witness firmer CPO prices in BMD’s FCPO. 1-month future CPO may again gap up to trade on par with US soybean oil in the short term. 1-month future CPO price is currently at US$247/t discount to US soybean oil (historical discount: US$134/t).

Indonesia + Ukraine = 39% of global edible oil exports

  • Indonesia, the world’s largest producer and exporter of palm oil, made up 31% of global exports in 2020. According to Oil World, Ukraine exported 7.2mt of edible oils (mainly sunflower oils) in 2020, which accounted for 8% of global exports of 95.1mt.
  • Ukraine ports in the Black Sea region are still temporarily closed since the Russia-Ukraine war started on 24 Feb. The disrupted exports from Indonesia and Ukraine will keep global edible oil prices lofty until such time when either Indonesia export ban is lifted or shipment from Ukraine in the Black Sea region is allowed to resume.

Risk of CPO price correction remains in 2H22

  • Malaysia-based planters are clear winners for now. Pure Malaysia plays include Sarawak Oil Palms, Ta Ann, Boustead Plantations, and Hap Seng Plantations. Among the large caps, IOI Corporation has the least exposure to Indonesia.
  • But bear in mind, this Indonesia export ban is temporary. We expect the ban to be lifted by end-2Q22. When the ban is lifted, we expect Indonesia to flood the global market with its inventory accumulated during the ban. And as the industry enters into its seasonal peak output period in 2H22, this could trigger sharp price correction.
  • 2022 will likely be a year of two halves for CPO price. CPO spot price has averaged MYR6,248/t year-to-date. Given the high prices and new export ban, we now raise our 2022E/2023E CPO ASP to MYR5,000/ 3,400/t (from MYR4,100/ 3,200/t). Correspondingly, our target prices and stocks call were also tweaked following the earnings revision.

Ong Chee Ting CA Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.980 SAME 0.980