• The Malaysian Palm Oil Board (MPOB) has released the country’s palm statistics for July 2023. Malaysia’s palm inventory inched up by 0.7% to 1.73mil tonnes in July from 1.72mil tonnes in June. This was below Bloomberg consensus estimates of 1.8mil tonnes. Although the country’s CPO production climbed by 11.2% MoM to 1.6mil tonnes in July, this was offset by a 15.6% expansion in exports.

• Going forward, we believe that palm inventory would continue rising as exports soften and production increases. We think that India’s demand may ease after the strong purchases in the previous months. The country’s inventory of edible oils at the ports and pipelines stood at 2.9mil tonnes as at 1 July 2023 vs. 2.3mil tonnes a year ago. In addition, we reckon that FFB yields would improve in Malaysia in 2H2023, underpinned by an increase in the number of harvesters. Recall that the country was short of 70,000-80,000 estate workers in 2022.

• Palm imports slid by 20.9% MoM to 111,780 tonnes in July even though the price disparity between CPO in Malaysia and Indonesia widened in July. CPO export tax and levy in Indonesia rose to US$106/tonne in July from US$93/tonne in June. Comparing 7M2023 against 7M2022, Malaysia’s palm imports declined by 5.6% to 683,722 tonnes. Also, domestic consumption of palm oil fell by 7.3% MoM to 356,230 tonnes in July. However on a yearly basis, domestic consumption surged by 26.7% to 2.4mil tonnes in 7M2023 on the back of a recovery in HORECA activities after being hit by Covid last year.

• Malaysia’s CPO production edged down by 1.5% YoY to 9.7mil tonnes in 7M2023. On a monthly basis, CPO output in Peninsular Malaysia strengthened by 15.1% to 862,499 tonnes in July while in Sarawak, CPO production rose by 15.6% to 395,858 tonnes. On the other hand, CPO output in Sabah eased by 1.2% MoM to 351,695 tonnes in July.

• Malaysia’s palm exports climbed by 15.5% to 1.4mil tonnes in July. According to Intertek, palm shipments to EU rose by 11.8% while palm exports to India grew by 11.8%. On a negative note, palm shipments to China fell by 4.6%. On a yearly basis, Malaysia’s palm exports inched down by 0.8% to 8.5mil tonnes in 7M2023 vs. the 1.5% decline in production.

• We raise our CPO price assumption to RM3,800/tonne (vs. RM3,500/tonne previously) for the pure Malaysian planters in our coverage. For companies with Indonesian exposure, we have assumed an average CPO price of RM3,500/tonne against RM3,000/tonne originally. With the exception of IOI Corporation, the fair values for our stock universe do not change as they are based on FYE12/24F earnings. After assuming an average CPO price of RM3,800/tonne for IOI’s FYE6/24F net profit, our fair value for IOI is now RM4.08/share vs. RM3.75/share originally.

• We remain NEUTRAL on the plantation sector. We believe that it would be difficult for CPO prices to sustain any rally as palm production is picking up and soybean oil prices are softening.

Source: AmInvest Research - 11 Aug 2023