Palm oil stockpile rose 10.7% MoM to 1.45m tonnes in Mar-21 (highest level since Nov-20), as higher exports were more than offset by higher output and exports. Despite the higher-than-expected stockpile in Mar-21, we believe stockpile will likely remain at low level in coming months, due to labour shortage, higher palm oil demand from China (due to seasonal factor and resurgence of African Swine Flu) and low edible oil stockpile in India (which will likely drive restocking activities in India). We maintain our CPO price assumptions of RM3,200/mt for 2021 and RM2,800/mt for 2022-23. Maintain our Neutral stance on the sector, as as we believe current high CPO price will not sustain over the longer term. For exposure, top picks are IOI Corp (BUY; TP: RM4.67), KLK (BUY; TP: RM26.64), IJM Plantations (BUY; TP: RM2.31), and TSH Resources (BUY; TP: RM1.18).

DATA HIGHLIGHTS

Stockpile increased for the first time since Jan-21. Palm oil stockpile rose 10.7% MoM to 1.45m tonnes in Mar-21, as higher exports were more than offset by a 28.4% MoM increase in output and higher imports. The stockpile came in higher than Bloomberg median estimate of 1.33m tonnes.

Output increased for the first time since Sep-20. Total output increased by 28.4% MoM to 1.42m tonnes in Mar-21, due mainly to seasonal effect. On cumulative basis, total output fell 5.2% YoY to 3.66m tonnes in 1Q21, due mainly to labour shortage

Exports to India remained on uptrend. Exports resumed on uptrend (for the first time since Dec-20), rising by 31.8% MoM to 1.18m tonnes in Mar-21, with lower exports to China (-13.2%) was more than mitigated by higher exports to India (+42.0%), EU (+46.1%) and Pakistan (+159.1%). Cumulatively, exports fell 13.1% YoY to 3.03m tonnes in 1Q21, and we believe this was due mainly to low palm oil production YTD.

Exports for the first 10 days of Apr-21. Ampec (independent cargo surveyor) indicated that palm oil exports increased by 11.3% MoM to 345k tonnes for the first 10 days of Apr-21.

HLIB’s VIEW

Forecast. Stockpile in Malaysia will likely remain low in coming months, due to labour shortage, higher palm oil demand from China (due to seasonal factor and resurgence of African Swine Flu) and low edible oil stockpile in India (which will likely drive restocking activities in India).

We maintain our recently revised CPO price assumptions of RM3,200/mt for 2021 and RM2,800/mt for 2022-23. We believe CPO price will remain elevated at above RM3,500/mt mark in 2Q21 and trend down more noticeably in 2H21, on the back of better soybean supply outlook, seasonally stronger palm oil output in 2H21. Besides, we believe a pullback in demand (which will pull prices of edible oil downwards) when supply recovery kicks in.

Stay Neutral. We maintain our NEUTRAL rating on the sector, as we believe current high CPO price will not sustain over the longer term. Our top picks are IOI Corp (BUY; TP: RM4.67), KLK (BUY; TP: RM26.64), IJM Plantations (BUY; TP: RM2.31), and TSH Resources (BUY; TP: RM1.18).

Source: Hong Leong Investment Bank Research - 13 Apr 2021