• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for January 2022. Palm inventory in Malaysia shrank by 3.9% MoM to 1.55mil tonnes in January after falling by 11.1% MoM to 1.61mil tonnes in December 2021. Bloomberg consensus had expected Malaysia’s palm inventory to be 1.58mil tonnes as at endJanuary. The MoM decline in January was mainly due to a low carry-over inventory from the previous month and a 13.5% drop in production. Malaysia’s palm exports slid by 18.7 MoM to 1.16mil tonnes in January.
• Domestic disappearance of palm oil amounted to 251,453 tonnes in January 2022 compared with 315,447 tonnes a year ago and 406,873 tonnes in December 2021. We attribute the MoM fall in January’s domestic disappearance of palm oil to a decline in transportation and HORECA activities after the festive and holiday season in December. Palm imports slid by 31.3% MoM and 52.0% YoY to 93,807 tonnes in January. We believe that palm imports would remain soft in the coming months as Indonesia has restricted 20% of its shipments to the domestic market. Incidentally, Indonesia kept its CPO export tax of US$200/tonne and levy of US$175/tonne unchanged for the month of February.

• On a monthly basis, CPO production fell by 12.4% to 639,615 tonnes in January in Peninsular Malaysia, 9.8% to 341,293 tonnes in Sabah and 20.1% to 272,534 tonnes in Sarawak. On a YoY basis however, CPO output grew by 11.3% to 1.25mil tonnes in January. We attribute this to improvements in FFB yields on the back of favourable weather conditions in Sabah. Average FFB yield in Malaysia was 1.1 tonnes/ha in January 2022 vs. 1.0 tonnes/ha a year ago. Average FFB yield in Sabah was 1.27 tonnes/ha in January 2022 compared with 1.01 tonnes/ha a year ago. If the enhancement in FFB yields continues, we reckon that CPO production growth in Malaysia would be robust in 2022F.

• Based on historical production patterns, industry CPO output is usually weak in 1Q and 4Q of the year before picking up from March or April onwards. We reckon that the arrival of foreign workers in 2Q or 3Q may hasten the recovery in CPO output in 2H2022. Oil World has forecast Malaysia’s CPO production to improve by 1.0mil to 1.1mil tonnes in 2022F (2021: 18.1mil tonnes).

• Malaysia’s palm exports amounted to 1.16mil tonnes in January 2022 vs. 0.95mil tonnes in January 2021 and 1.41mil tonnes in December 2021. Palm exports to China fell by 48.9% MoM to 75,115 tonnes in January while India’s palm imports plunged by 39.5% to 225,402. Countering lower shipments to China and India in January was higher demand from Egypt and Turkey. Malaysia’s palm exports to Egypt surged by 75.1% MoM to 62,608 tonnes in January while the Turkey bought 47.9% more palm oil. Interestingly, Malaysia’s palm exports to the USA dived to 2,892 tonnes in January 2022 from 44,651 tonnes a year ago.

• We are NEUTRAL on the plantation sector due to ESG concerns. Recent news that the US CBP has issued a notice of finding on Sime Darby Plantation’s labour practices in Malaysia is expected to increase the sector’sESG risks. Hence, we do not have any BUY in our stock universe. However, for investors who like exposure, we would recommend KL Kepong (fair value: RM23.30) for its young oil palm trees in Indonesia and clean balance sheet.

Source: AmInvest Research - 11 Feb 2022