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Regional Plantations - Maybank Research 2022-04-28: Back With A Bigger Ban(g)

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

Regional Plantations - Back With A Bigger Ban(g)


This ban is likely to be short-lived

  • It is final! Indonesia is banning the exports of CPO, RBD Palm Oil, RBD Palm Olein effective 28 April. BMD FCPO jumped 10% d-o-d yesterday. Indonesia’s domestic CPO price should quickly gravitate towards subsidized cooking oil price of IDR14,000/liter. Malaysia-centric planters (including refiners) are short-term winners while Indonesia-based planters are short-term losers as we believe the ban will be lifted in 1-2 months.
  • Preferred BUYs are now IOI Corp and KL Kepong. We advocate trading on purer Malaysia growers such as Ta Ann Holdings, Sarawak Oil Palms, Boustead Plantation and Hap Seng Plantation. And we expect short-term negative share price reactions on SGX and IDX listed planters.



International CPO price to stay firm in 2Q22

  • After flip-flopping, the Indonesia government finally released a regulation that will ban the exports of CPO, RBD Palm Oil and RBD Palm Olein (among others) effective 28 April. The export ban will be reviewed monthly or as when necessary.
  • As we have highlighted in our previous report “2Q22: Heightened price volatility on ID’s export ban”, without the export market, Indonesia will have an estimated excess supply of ~30mt of CPO (annually) as 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).
  • We anticipate the storage tanks in Indonesia to “overflow” in 1-2 months, and market forces will push Indonesia’s domestic CPO price down quickly towards Indonesia’s subsidized cooking oil price of IDR14,000/liter, below the present domestic CPO price of IDR16,563/kg or MYR4,971/t (last reported on 21 April).
  • In contrast, we should witness firmer CPO prices in Bursa Malaysia Derivative’s Future CPO while the ban is in place as Indonesia accounts for 31% of global exports of 17 Oils and Fats in 2020. The ban will surely worsen the already tight global edible oils supply following the Russia-Ukraine war, and likely hasten demand destruction.


Ban poses short-term earnings risks to all Indonesia planters

  • Besides Indonesia-based refiners losing their lucrative export margins due to the ban during the duration of the ban, all Indonesia-based growers will also suffer from our anticipated lower CPO selling prices in the domestic market. The ban is to address the shortage of affordable cooking oil in Indonesia. We envisage the price gaps between Malaysia-Indonesia to widen sharply during the ban period.

Malaysia-growers and refiners are beneficiaries for now

  • Malaysia-based planters are clear winners for now. Pure Malaysia plays include Sarawak Oil Palms, Ta Ann Holdings, Boustead Plantation, and Hap Seng Plantation. Among the large caps, IOI Corp has the least exposure to Indonesia. But bear in mind that this Indonesia export ban is just temporary.
  • When storage tanks are full in Indonesia, FFBs will be left to rot in the fields as the mills will not be able to buy FFBs (especially from smallholders) to process, creating a different set of social and economic problem for the President of Indonesia. And when the ban is lifted, we expect Indonesia’s palm oil to flood the global market with the inventory accumulated during the ban and as the industry prepares to make room for the bigger seasonal harvest in 2H22. When that happens, prices on Bursa Malaysia Derivative Futures may correct sharply.
  • We are keeping our MYR5,000/t CPO ASP forecast for 2022E and MYR3,400/t for 2023E.





Ong Chee Ting CA Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-28
SGX Stock Analyst Report SELL MAINTAIN SELL 1.940 SAME 1.940
BUY MAINTAIN BUY 0.980 SAME 0.980



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