- Bloomberg reported that the Agriculture Minister in Indonesia has signed a decree limiting palm oil plantation companies to a maximum of 100,000ha of landbank for new permits.

- The decree needs to go through the administrative process to become law.

- The rule will apply to individual plantation companies and companies with more than one plantation unit. The rule is not retrospective.

- The news report was scant in details.

- Based on the news report, it is still uncertain as to whether an entire group of companies would be limited by the 100,000ha cap or only a plantation unit.

- In a previous draft, it was also stated that listed companies would be exempt from the proposed landbank limit of 100,000ha.

- Although it was not mentioned as to where the companies are supposed to be listed, we think that it refers to companies listed on the Indonesia Stock Exchange.

- The proposed cap on landbank ownership is not positive for plantation companies as it would limit their growth.

- However in the longer term, it would be positive for CPO prices as the supply of palm oil would be restrained.

- Among the companies under our coverage, IJM Plantations and TH Plantations still have room to grow their landbank in Indonesia as they have not reached the 100,000ha cap yet.

- Presently, IJM Plantations’ landbank in Indonesia amount to 48,071ha while TH Plantations has 11,837ha of land in the country.

- We are neutral on the plantation sector. Our top pick in the sector is Genting Plantations.

Source: AmeSecurities