• Inventory grew 16% mom to 2.56m tonnes, highest level since Jan 2016.

• Exports fell 12% mom to 1.35m tonnes.

• CPO production dropped 3% mom to 1.94m tonnes.

• Production slowdown is expected to continue up to March/April 2018 as we head for a low production season.

• Our average CPO price projection of RM2,700/MT for 2017 and RM2,600/MT for 2018 remains unchanged. Maintain Neutral.

November’s closing stock surged to 2.56m tonnes.

Inventory as at November 2017 increased by 16% mom to 2.56m tonnes (yoy: +54%); the highest level since January 2016. The higher inventory figure reflects the lower export and higher palm oil import of 30.19k tonnes compared to 13.48k tonnes in Oct 2017. We expect stock level continuing its momentum in Dec 2017 as ending stocks trend higher and demand growth continues to moderate. The increase in inventory was due to higher stocks from both CPO and PPO (processed palm oil) which surged by 21% and 10% respectively to 1.489m tonnes and 1.068m tonnes during the period.

Demand fell 12% mom in November

Palm oil export volume declined 11.9% mom to 1.354m tonnes vs. 1.538m tonnes recorded in Oct 2017 (-1.2% yoy) as India, EU and Pakistan, registered lower mom demand. India registered the biggest drop of 39.8% followed by Pakistan (-25.2%) and EU by -22.7%.

Production dropped as sector enters into low production cycle month.

Malaysia’s CPO production slipped 3.3% mom to 1.943m tonnes (+23.4% yoy), in Nov 2017 as sector enters into low production cycle month. The lower production was driven by lower output from all states except for Sabah and Negeri Sembilan which saw production increased by +1.7% and +0.5% mom respectively to 514,798 tonnes and 71,278 tonnes. Kelantan recorded the largest drop of 13.8%, followed by Sarawak -8.3%, Kedah -7.9%, Terengganu - 6.9% and Perak by -5.7%. We expect monthly production to fall further in December and up to March/April 2018 as we head for low production season. Total FFB production for the period of Jan-Nov 2017 improved by 14.1% yoy to 18.085m tonnes – accounting for 94% of our full year forecast. We maintain our forecast that CPO production would reach 19.28m tonnes this year (+11.3% yoy).

Average CPO price forecast at RM2,700/MT for 2017

We are maintaining our forecast average CPO price of RM2,700/MT for 2017 and RM2,600/MT for 2018. The 3- month CPO futures price in the month of November has trended lower to close the month at RM2,603/MT. However, CPO price for local delivery, i.e. MPOB’s CPO price for Nov 2017, decreased slightly by 1.7% mom (yoy: -6.8%) to an average of RM2,689/MT against RM2,736MT recorded in the previous month.

For Jan-November 2017 period, the MPOB average CPO price stands at RM2,833/MT, up by RM250/MT or +9.7% against RM2,583/MT recorded in the same period last year – and 4.9% above our 2017 average CPO price forecast of RM2,700/MT.

Maintain NEUTRAL

We maintain our Neutral recommendation on the plantation sector and recommend investors to accumulate plantation stocks if there is any pull-back in share price. Maintain HOLD on KLK (TP: RM26.46) and Batu Kawan (TP: RM20.39), IOIC (TP: RM4.64), IJMP (TP: RM2.95) and Sarawak Plant (TP: RM1.78) while BUY on SOP (TP: RM6.00), Hap Seng (TP: RM2.89), TSH (TP: RM2.20) and GENP (TP: RM11.92). We have a Sell on FGV (TP: RM1.59) and a non-rated for TH Plant

Source: BIMB Securities Research - 13 Dec 2017