October closing stocks eased to 2.35m tonnes
Malaysia’s October 2019 inventory dropped 4.09% mom to 2.348m tonnes as export increased whilst production tumbled 2.5% to 1.8m tonnes. Both stocks of CPO and PPO (processed PO) decreased 2.2% and 6.5% mom to 1.32m tonnes and 1.02m tonnes respectively during the period. However, CPO stocks was 14% mom higher in Sabah. The higher stocks in Sabah was due to higher CPO production that has increased 8.8% to 475.97k tonnes, aided by the timing of deliveries during the month.
Export surged 16.43% mom to 1.64m tonnes
Palm oil export volume surged 16.4% mom to 1.642m tonnes in Oct 2019 as major importing countries like China and EU increased their intake of PO. China increased their intake of PO by 23.78%, believed to meet higher demand for upcoming festivities in January. We are of the view that higher demand from China was due to ASF outbreak aided by lower import of soybean that have impacted China’s domestic soybean crushing.
On the other hand, we believe export of PO to India will continue to be muted given India has already restock their PO ahead of the Deepavali festivities, in addition to Malaysia’s losing market position to Indonesia in terms of price competitiveness.
Production dropped 2.5% mom to 1.80m tonnes.
Malaysia’s CPO production weakened 2.53% mom (-8.6% yoy) to 1.796m tonnes in October 2019 as all states registered lower production except for Sabah. The lower production was led by Perak which dropped by 13.3% mom to 141k tonnes, followed by N. Sembilan (-12.8%), Selangor (-10.9%), Kedah (-9.2%) and Sarawak (-8.2%). As for Jan-Oct 2019 period, CPO production surged 7.1% yoy to 16.986m tonnes. We maintain our forecast that CPO production would reach 19.99m tonnes for this year (+2.4%).
Average CPO price forecast maintained at RM2,050/MT for 2019 but revised higher to RM2,380/MT from RM2,200/MT for 2020.
The 3-month CPO futures price in the month of Oct traded higher, closing the month at RM2,485/MT. CPO price for local delivery, i.e. MPOB’s CPO price increased slightly by 0.3% mom to an average of RM2,104/MT against RM2,097/MT recorded in the previous month. Nevertheless, for Jan-Oct 2019 period, the MPOB average CPO price was down by RM308/MT or -13.3% to RM2,012/MT against RM2,320/MT recorded in the same period last year.
We have revised higher our average CPO price forecast (local delivery) for 2020 to RM2,380/MT from RM2,200/MT previously, whilst maintaining RM2,050 for 2019. We anticipate 3 primary issues that will play out for next year, namely 1) tighter supply – low FFB production in Malaysia and Indonesia, 2) higher biodiesel take-off (B30 mandate in Indonesia, and B10/B7 for the transport/industrial sector In Malaysia), and 3) rally in soybean oil prices.
Risk factors would include 1) lower-than-expected demand due to changes in government policies of importing countries and 2) weakening of crude oil prices
Upgrade the sector call from “Underweight” to “Neutral”
Given current positive shift in supply-demand dynamic and stockpile of PO next year, we revised our sector call to Neutral from Underweight previously. We believe the worst is over for plantation stocks, which have largely underperformed the stock market over the last year as earnings deteriorated. We have Hold recommendation on KLK (TP: RM23.80), HAPL (TP: RM1.44), TSH (TP: RM0.91), GENP (TP: RM10.33), SOP (TP: RM1.98), FGV (TP: RM0.96), Sarawak Plant (TP: RM1.65) and SDPL (TP: RM4.83); with Buy on IOI (TP: RM5.00) and a nonrated for TH Plant.
Source: BIMB Securities Research - 11 Nov 2019
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
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Created by kltrader | Aug 09, 2024