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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 22 Feb 2019, 10:08 AM

 

Plantations - Off To A Good Start in 2019

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Malaysian palm oil sector started the year with a favourable move with inventory level falling 6.7% MoM to 3m mt on the back of lower production and stronger exports. CPO futures also saw a decent move, rallying more than 16% to RM2,077/mt since touching a 2-year low in end-Nov. Meanwhile, market will be focusing on the domestic biodiesel consumption this month as the B10 biodiesel mandate for transportation sector effectively kicks-off. Maintain Neutral call on the sector outlook with a full-year CPO price forecast of RM2,200/mt. Ta Ann remains our top pick.

  • Inventory easing from record high level. Jan palm oil inventory fell for the first time in 8 months, down 6.7% MoM, to 3.03m mt, which is slightly below market expectations. Consequently, stock-to-usage ratio slipped from 15.7% to 12.3% as export demand grew while production declined.
  • Exports jumping to the highest level since Aug 2016. CPO exports rallied 21.2% MoM to 1.67m mt, the strongest level in 26 months. Amongst the major consuming countries, only Pakistan (-22.8%) showed a decline. EU showed the strongest demand growth, rising more than 160%, followed by China, 18% and India, 12% following the downward revision for CPO import duty.
  • Production falling for third straight month. CPO production dropped 3.9% MoM to 1.73m mt, the lowest level since Sept 2018. Surprisingly, the decline in national production level was mainly from the East Malaysia, down 8.6% MoM as production in Peninsular Malaysia was marginally higher.
  • Weaker start in Feb. Malaysian palm oil exports for the 1st 10 days of Feb fell 13% YoY to 393,353mt, according to Intertek.
  • Strong rebound in CPO price performance. CPO futures rallied more than 16% to RM2,270/mt after falling to the lowest in 2 years as market see signs of declining in the record high inventory level during the low production season.
  • Expecting another set of poor results in 4Q. We think it is going to be another tough quarter for most plantation players in the upcoming quarterly results as average CPO spot price was weaker at RM1,920/mt (YoY: -26%, QoQ: -12%).

Source: PublicInvest Research - 12 Feb 2019

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