Plantation companies: Better exports chip away inventory

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April 12, 2018 Stock No Comments
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Plantation companies
Better exports chip away inventory

Analyst

William Simadiputra +62 2130034939 william.simadiputra
Regional Research Team +65 66823690 equityresearch.

  • Malaysia’s CPO stockpile hit 5-month low on strong exports – on track to meet our full-year estimate
  • This is despite output growing double digits m-o-m
  • Export uptrend will continue in April-May
  • Retain BUY on Astra Agro (AALI), Lonsum (LSIP), Bumitama (BAL), First Resources (FR), Wilmar (WIL) and TSH Resources (TSH)

Malaysia’s crude palm oil (CPO) inventory hit 5-months low – on track to meet our forecast. Inventory hit a 5-months low of 2.3m MT (+50% y-o-y, -6% m-o-m), on track to meet our full-year forecast, on stronger-than-expected exports as earlier purchases ahead of Ramadan kept stockpile in check despite the stronger-than-expected output in the month. We are expecting inventory to drop further to 2.1m MT in April, on the back of an export uptrend and mild CPO output.

India leads strong export volume. The strong export trend ahead of Ramadan has emerged earlier this time – we believe higher CPO affordability also led to a 14% m-o-m growth in exports. CPO exports reached 1.57m MT (-5% y-o-y), led by India and China with export volume growth of 395k MT (+26% y-o-y, +130%m-o-m) and 134.3k MT (+27% m-o-m, +30% y-o-y) respectively. On the other hand, exports to EU countries dropped by 46% m-o-m to 133k MT (-1% y-o-y), in the wake of elevated palm oil purchases in the previous month.

Output surged 17% m-o-m. Output grew by 17% m-o-m to 1.58m MT (+8% y-o-y), ahead of our expectations due to stronger-than-expected yields across the region (Peninsular Malaysia and Sabah/Sarawak). We expect output to inch down to 1.45m MT (-6% y-o-y, -8% q-o-q) in April 2018.

Stockpile level improvement to support CPO prices. While the stockpile level was in line with our estimate, we believe CPO prices will track our average CPO price assumption of RM2,620 per MT. China’s 25% import tariff on US soybean oil could provide short-term benefits to CPO prices, especially if CPO is required to fill any potential volume gap left by soybean oil in the first three months of the implementation of such a tariff.. However, we do not see any structural changes in China’s palm oil consumption trend. We also keep our BUY ratings for AALI, LSIP, BAL, FR, WIL and TSH.

William Simadiputra
+62 2130034939
william.simadiputra
Regional Research Team
+65 66823690
equityresearch
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