Bimb Research Highlights

Author: kltrader   |   Latest post: Fri, 19 Feb 2021, 5:16 PM


MPOB Monthly Statistics Dec 2020 - Lower carry forward stocks to 2021

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  • Inventory eased 19.0% mom to 1.26m tonnes in December
  • CPO production contracted 10.6% mom to 1.33m tonnes.
  • Palm oil exports improved 24.7% mom to 1.62m tonnes.
  • Maintain Neutral on the sector with target average CPO price of RM2,950/MT for 2021 and RM2,700/MT for 2022.

Closing stocks improved 19% mom to 1.26m tonnes in December

Unexpectedly inventory in December 2020 dropped significantly to 1.26m tonnes vs. 1.56m tonnes in Nov (-19.0% mom; -37.1% yoy) – the lowest recorded in seventeen years (Dec’03: 1.17m tonnes). This is supported by higher export and lower production registered during the month - although import is higher, recorded at 282k against 113k tonnes registered in Nov’20 (+150% mom and +129% yoy). The decline in inventory reflects the 19.2% and 18.8% drop in CPO and PPO (processed palm oil) stocksto 583.8k tonnes and 681.1k tonnes respectively during the period. We predict that stocks level would continue to be lower at the region of 1.25m tonnes to 1.45m tonnes up until Feb’21 as production is expected to continue to be weak and exports remain encouraging to cater demand for festivities.

Export surged 24.7% mom to 1.62m tonnes

Palm oil export volume increased 24.66% mom to 1.625m tonnes in Dec as oppose to 1.303m tonnes in Nov 2020 as major importing countries like India, USA, Iran, South Korea and Philippines increased their PO intake – believe to take advantage of zero export tax impose by Malaysia before its start to kick-in in Jan 2021.

As for Jan-Dec’20 period, demand declined by 5.96% yoy to 17.369m tonnes against 18.469m tonnes registered in the same period last year. Conversely, exports value of palm oil and palm oil products for Jan-Dec 2020 period increased 43% yoy to RM72.77m as compared to RM63.69m registered in the same period last year – in view of higher palm products price achieved in 2020.

Production declined 10.59% mom to 1.33m tonnes.

Malaysia’s CPO production decreased 10.59% mom (-0.02% yoy) to 1.334m tonnes in Dec 2020 vs. 1.492m tonnes in Nov 2020. Mostly all states in Malaysia recorded mom lower in CPO production, except for Kedah and Perak which both increased 4.9% mom to 10.7k tonnes and 124k tonnes respectively. As for Jan-Dec 2020 period, CPO production dropped 3.63% yoy to 19.137m tonnes due to lower FFB and lower quality OER processed. We are of the view that lower OER and FFB yield would continue to shadow the CPO production in the next couple of months as productivity is wedged by the lag impact of weaker yield from the dry weather experienced in 2019 and lower fertilizer application in 2018/19, coupled with localise flooded in palm production states i.e., Pahang and Johor.

Maintain 2021 average CPO price forecast at RM2,950/MT

The BMD’s 3-month CPO futures price for the month of December was bullish, closing the month at RM3,600/MT (+8.93% mom) - in line with the rally in Soybean oil prices. The average CPO price for local delivery increased 6.5% mom to an average of RM3,620.50/MT against RM3,422/MT recorded in the previous month (Dec’19: RM2,813/MT); as demand prospect encouraging and a hiccup in PO production due to labour shortage, weaker yield and La-Nina impact intensify. As for Jan-Dec 2020 period, the MPOB average CPO price of RM2,685.50/MT was higher by RM606.50/MT or 29.2% against RM2,079/MT recorded in the same period last year.

We are predicting that CPO price for the first-quarter of 2021 to trade within a range of RM4,000/MT and RM3,500/MT; taking cue from the current bullish crude palm oil’s price outlook that is supported by positive sentiment, i.e., 1) rally in soybean oil prices - tight supply of vegetable oil especially Soybean in Argentina and Brazil whilst Sunflower and rapeseed in black sea region, 2) lower FFB production from Malaysia – apart from lower yield, production is expected to be lower as harvesting is believe to be badly interrupted by flooded in localise palm plantation states i.e., Pahang and Johor, and 3) demand is expected to continue to be encouraging, supported by demand for festivities.

We believe the possible negative factors for CPO price are 1) slower economic growth and consumption of edible oils, 2) lower-than-expected demand due to changes in government policies of importing countries, 3) higher-than-expected 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 call on plantation sector as valuations, in our view, will moderate following the anticipated setback in palm products price towards the end of the second-half of 2021. The high operational costs and suppressed profit margin on lower-than-expected production might be the hiccup for earnings moving ahead coupled with continuous challenges and obstacle face by the industry. Nevertheless, we foresee that upstream players' current low PER implies that market has not fully accorded the growth to be generated by these company on account of higher palm oil product prices anticipated in 2020/21. As such, we have BUY call on TSH (RM1.23), SOP (RM4.50), Sarawak Plant (RM2.50) and HAPL (TP: RM2.07), whilst HOLD recommendation on KLK (RM23.10), IOI (RM4.80), GENP (TP: RM10.00), FGV (TP: RM1.17) and SDPL (TP: RM5.40); and non-rated for TH Plant.

Source: BIMB Securities Research - 12 Jan 2021

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