• The Malaysian Palm Oil Board (MPOB) has released the country’s palm oil statistics for March 2018. Palm inventory in Malaysia declined for the third time in a row in March as imports dropped and exports rose. Palm inventory in Malaysia stood at 2.32mil tonnes as at end-March vs. 2.48mil tonnes as at end-February. The palm inventory of 2.32mil tonnes in March was above consensus estimates of 2.28mil tonnes.
• We believe that Malaysia's palm stockpiles would rise from April 2018 onwards as production recovers in line with the peak output season. Oil palm trees in Malaysia and Indonesia are expected to hit their peak either in October or November. In 2017, palm production in Malaysia was the highest in October before tapering off in November and December.
• Palm imports slid by 33.4% from 277,573 tonnes in 1Q2017 to 184,730 tonnes in 1Q2018. Comparing March against February, palm imports declined by 26.3% to 62,192 tonnes. We reckon that palm importswould increase going forward as downstream companies in Malaysia switch to cheaper CPO from Indonesia to be used as feedstock. The price of CPO from Indonesia is lower than Malaysia by RM200/tonne to RM300/tonne.
• CPO production in Malaysia expanded by 12.6% YoY in 1Q2018. Comparing March against February, CPO output rose by 17.2% to 1.57mil tonnes due to a higher number of working days. The 17.2% MoM increase in CPO production in March was led by a 21.9% rise in output in Sarawak. In Sabah, CPO production improved by a mere 7.3% from 398,155 tonnes in February to 427,378 tonnes in March while in Peninsular Malaysia, CPO output grew by 21.2%. Oil World forecasts CPO output in Malaysia to improve by 4.2% from 19.92mil tonnes in 2017 to 20.76mil tonnes in 2018F.
• Malaysia's palm exports increased by 20.0% YoY to 4.39mil tonnes in 1Q2018. Demand growth was underpinned by China, which bought 5.9% YoY more palm oil and India, which received 104.8% YoY more palm shipments in 1Q2018. Going forward, we expect demand from China to ease as the country has ample inventories of palm at the ports. Palm inventory at the major ports in China stood at 704,100 tonnes as at 10 April 2018 vs. 577,000 tonnes as at 10 April 2017. China was the second largest buyer of Malaysia's palm oil, accounting for 9.0% of exports in 1Q2018. India was the biggest buyer of Malaysia's palm oil, accounting for 20.7% of exports in 1Q2018.
• We are NEUTRAL on the outlook for the plantation sector in 1H2018. We expect the 1Q2018 financial results of plantation companies in May to be weak due to the drop in CPO price. Although CPO production of plantation companies is expected to be higher in 1Q2018 vs. 1Q2017, this would not be enough to compensate for the decline in the CPO price. According to the MPOB, average CPO price fell by 21.7% from RM3,152/tonne in 1Q2017 to RM2,467/tonne in 1Q2018. Currently, we have a BUY on Genting Plantations with a fair value of RM11.50/share.

Source: AmInvest Research - 11 Apr 2018