Bimb Research Highlights

Author: kltrader   |   Latest post: Mon, 13 Jan 2020, 5:44 PM


MPOB Monthly Statistics April 2019 - April inventory eased further to 2.73m tonnes

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  • Inventory decreased 6.62% mom to 2.729m tonnes
  • CPO production declined 1.36% mom to 1.649m tonnes
  • Palm oil exports surged 2.02% mom to 1.651m tonnes.
  • Maintain Underweight on the sector with target average CPO price for 2019 of RM2,280/MT.

Closing stocks eased further to 2.73m tonnes

Malaysia’s April 2019 inventory reduced further by 6.62% mom to 2.73m tonnes as exports increased 2.0% mom to 1.651m tonnes. Meanwhile production soften 1.4% to 1.649m tonnes. The decline in inventory also reflects the 52.7% drop in palm oil import to 62.1m tonnes from 131.2m tonnes the month before. Notably, stocks of CPO decreased by 5.7% mom (+32.4% yoy) to 1.59m tonnes during the period – with all states recorded lower inventory except for Sarawak (+14% mom). Same goes to stocks of PPO (processed PO), decreased 7.9% mom to 1.14m tonnes although still higher by 14.7% yoy from 991k tonnes recorded in Mar18. We project stock level shall continue to gradually decrease in May-June 2019 period to 2.6m tonnes.

Export surged 2.02% mom to 1.65m tonnes

Palm oil export volume increased 2.02% to 1.651m tonnes vs 1.618m tonnes recorded in March 2019 (+7.9% yoy) as importer increased their demand in preparation for festivities. Iran recorded the biggest increase of 169.5% followed by UAE (+118.3%), India (+53.5%), and China by +17.2% (Table 3: mom and yoy change).

We are of the view that PO demand will be on risk given higher stockpiles, negative sentiment on PO especially in EU and unsettled trade tension between China and US. For the month of April, although export increased to 1.65m tonnes, PO export value decreased 5.4% mom (-7.4% yoy) to RM3.66bn vs. RM3.87bn registered in prior month.

Production dropped 1.4% mom to 1.65m tonnes.

Malaysia’s CPO production decreased slightly by 1.36% mom to 1.649m tonnes in April 2019; the highest for the month of April since 2015. Nonetheless, production is still higher by 5.8% yoy vs 1.56m tonnes recorded in April 2018. We believe production would continue to be on a downward trend up to May-June period, given the fasting and festive month; before it starts normalising in 3Q, and then rising again in 4Q when the sector enters its seasonally higher production peak month.

Average CPO price forecast maintained at RM2,280/MT for 2019.

The 3-month CPO futures price in the month of April lost its momentum to trade lower and closed the month at RM2,095/MT (lowest for the month). On the other hand, CPO price for local delivery, i.e. MPOB’s CPO price surged 6.0% mom to an average of RM2,018.50/MT against RM1,903.50/MT recorded in the previous month. Nonetheless, the MPOB average CPO price (Jan-April period) was down by RM440/MT or -17.9% against RM2,455/MT recorded in the same period last year.

We maintain our prediction for CPO price to trade within a range of RM1,900/MT – RM2,550/MT for 1H2019 and RM2,100/MT – RM2,500/MT for 2H2019, as we expect the upside is limited due to low SBO prices, strengthening of ringgit, volatile crude oil prices, unsettle trade-dispute, and weaker demand as we estimate demand may continue to moderate.

Maintain Underweight

We reiterate our Underweight recommendation on the plantation sector. Maintain HOLD on SDPL (TP: RM5.03), SOP (TP: RM2.46), GENP (TP: RM10.33), HAPL (TP: RM1.90), KLK (TP: RM24.25), Batu Kawan (TP: RM17.28), IOIC (TP: RM5.00), TSH (TP: RM1.06), Sarawak Plantation (TP: RM1.65) and FGV (TP: RM1.13). We have Sell on IJMP (TP: RM1.47) and ‘NonRated’ for THP.

Source: BIMB Securities Research - 10 May 2019

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