Bimb Research Highlights

Author: kltrader   |   Latest post: Tue, 17 Nov 2020, 5:57 PM


MPOB Monthly Statistics Sept 2020 - Inventory Increased 1.2% To 1.73m Tonnes

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  • CPO production increased 0.3% mom to 1.87m tonnes in September
  • Inventory surged 1.2% mom to 1.73m tonnes
  • Palm oil exports improved 1.9% mom to 1.61m tonnes.
  • Maintain Neutral on the sector with target average CPO price of RM2,500/MT for 2020 and RM2,400/MT for 2021.

Closing stocks increased 1.24% to 1.73m tonnes in September

Malaysia’s September 2020 inventory climbed 1.24% mom to 1.725m tonnes (-29.5% yoy) against 1.704m tonnes recorded in the previous month. The higher inventory figure reflects the higher production and higher PO import of 48.3k tonnes compared to 32.3k tonnes in August 2020, aided by lower local consumptions estimated at 284k tonnes (- 7.4% mom) during the month. Notably, stocks of CPO and PPO (processed PO) increased 0.4% and 2.2% mom to 934k tonnes and 790k tonnes respectively during the period. We expect stock level to remain elevated in the coming months as production increases whilst demand moderates.

Export improved 1.9% to 1.61m tonnes

Palm oil export volume improved 1.88% mom to 1.612m tonnes in September 2020 as major importing countries like India, Philippines, Netherlands, USA and Benin increased their PO intake. We anticipate that demand from China and India would continue to be healthy in preparation for festivities and replenishing activities as their stockpiles are relatively low at current level. Nonetheless, for Jan-Sept’20 period, demand weakened 8.9% yoy to 12.8m tonnes against 14.0m tonnes recorded in the same period last year.

Production increased 0.33% mom to 1.87m tonnes.

Malaysia’s CPO production increased 0.33% mom to 1.869m tonnes in September 2020 as sector is currently in the seasonally higher production month (+1.46% yoy) of Sep-Nov. The higher production was led by Sabah which surged by 11.8% mom to 447k tonnes, followed by Kelantan (+4.6%), Pahang (+1.1%), Negeri Sembilan (+0.6%) and Johor (0.4%); whilst others recorded a decline in growth. As for Jan-September 2020 period, CPO production dropped 3.97% yoy to 14.587m tonnes, i.e. making up 77% of our 2020 forecast. We forecast CPO production for this year to fall 5% yoy to 18.87m tonnes on account of reduced yields due to dry weather, biological tree stress and low fertilisers usage as well as labour shortages.

Average CPO prise forecast maintained at RM2,500/MT for 2020 and RM2,400/MT for 2021.

The BMD’s 3-month CPO futures price for the month of September traded range-bound, closing the month at RM2,714/MT (-0.88% mom). On the other hand, the average CPO price for local delivery increased 3.9% mom to an average of RM2,924/MT against RM2,815/MT recorded in the previous month; believed to be due to positive sentiment on better demand prospect and possible hiccup in production due to labour shortage and unfavourable weather conditions. As for Jan-Sept 2020 period, the MPOB average CPO price of RM2,573/MT was higher by RM571/MT or 28.5% against RM2,002/MT recorded in the same period last year.

Although CPO price (local delivery) is currently traded at RM3,003/MT, we are of the view that the upside is limited due to the recent increase in Covid-19 cases, volatile crude oil prices, unsettled US-China trade-dispute, and slower global economy, which would cause demand to continue to be moderate. We predict that price may decline to RM2,500/MT – RM2,700/MT as palm oil harvest enters its peak production month (probably in October or early November) and coincides with soybean harvesting season in US.

Risk factors for our CPO price estimate include 1) slower economic growth and consumption of edible oils, 2) lower-than-expected demand, 3) ample supply and stockpiles of Soybean and SBO, 4) narrowing of the price differential between CPO and SBO, 5) weakening of crude oil prices, and 6) prolong Covid-19 pandemic and movement restriction.

Maintain “Neutral”

Maintain Neutral on the sector. Although CPO prices have been bullish lately, our view is that earnings upside could be limited by high operational costs and suppressed profit margin on lower-than-expected production and sales volume – with labour issue remaining as a key concern for planters, especially during the higher production month in Oct-Nov. We expect performance of pure plantation companies to be favourable given current palm products prices currently trading above 2019’s average price. Nonetheless, there might be profit margin squeeze for downstream players due to higher feedstock price and keen competition especially from petrochemical products that will impact demand, hence affecting sales volumes of bio-based products. We maintain our earnings forecast with BUY call on TSH (RM1.23), SOP (RM4.30) and Sarawak Plant (RM1.94) whilst retaining HOLD recommendation on KLK (RM23.10), IOI (RM4.80), GENP (TP: RM10.00), FGV (TP: RM1.04), SDPL (TP: RM4.83) and HAPL (TP: RM1.66); whilst non-rated for TH Plant.

Source: BIMB Securities Research - 13 Oct 2020

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