Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Wed, 29 Jul 2020, 10:01 AM


Plantation - Lower Inventory on Higher Exports and Consumption

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Malaysia’s May19 CPO production increased slightly by 1.3% mom to 1.67m MT. We believe production for June is likely be affected by the Hari Raya festivities. Palm-oil exports increased by 3.5% mom to 1.71m MT due to higher demand for palm-oil products from India, Iran, USA and the EU. We believe the increase in exports and consumption has contributed to the lower palm-oil inventory in May19 of 2.45m MT, the lowest inventory level since Aug18. We still expect global palm oil inventory to gradually decline with higher exports and higher consumption of palm-oil products going forward, supported by the energy market and food industries, in our view. Overall, we maintain our Neutral rating on the plantation sector and Ta Ann as our top pick.

CPO Production in May Increased Slightly by 1.3% Mom to 1.67m MT

Malaysia’s CPO production in May19 increased marginally by 1.3% mom to 1.67m MT, due to higher production from Peninsular and Sarawak. CPO production in Peninsular and Sarawak increased by 1.2% and 4.4% mom to 935.9k MT and 323.8k MT respectively, while production in Sabah declined by 0.6% mom to 411.8k MT. We think CPO production for June could potentially be affected by the Hari Raya festivities. Overall, Malaysia’s CPO production for 5M19 was up by 9.1% yoy to 8.3m MT, underpinned by improving FFB yields and CPO oil extraction rates. We expect 2019 CPO production to rebound to c.20m MT from 19.5m MT in 2018 (Oil World forecast for Malaysia’s CPO production in 2019: 20.3m MT).

Stronger Demand for Palm-oil Products, Exports Up 3.5% Mom

Palm-oil exports in May19 increased further by 3.5% mom to 1.71m MT, mainly attributable to higher demand from India, Iran, USA and the EU. Exports to India, Iran, USA and the EU climbed by 0.9%, >100%, >100% and 42.7% mom respectively, to 528.6k MT, 124.6k MT, 121.1k MT and 200.8k MT. The higher palm-oil exports to India and Iran could partly be attributable to stocking up ahead of Ramadhan as well as the Hari Raya celebration. For 5M19, total exports rose by 12.5% yoy to 7.99m MT.

Stock Level Declines Further to 2.45m MT, Lowest in 10 Months

Malaysia’s palm-oil inventories in May19 declined for the third straight month, down by c.282.3k MT mom (or -10.3%) to 2.45m MT (record high was in Dec18 at 3.2m MT). We believe the increase in palm-oil product exports as well as higher consumption has contributed to inventory level declining to its lowest since Aug18.

Source: Affin Hwang Research - 12 Jun 2019

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