Palm oil stockpile rose for the second consecutive month, by 7.1% MoM to 1.55m tonnes in Apr-21, as higher exports were more than offset by higher production and lower domestic disappearance. Exports remained on uptrend, boosted by higher exports to China and India (on low stockpile, we believe). Stockpile in Malaysia will likely remain low in May-21, as potentially weaker exports demand from India (taking cue from the recent resurgence in Covid-19 cases, which will likely result in weaken India’s demand for edible oil, including palm oil) will likely be mitigated by resilient demand from China and seasonally weaker output. We maintain our CPO price assumptions of RM3,200/mt for 2021 and RM2,800/mt for 2022-23, as well as our Neutral stance on the sector. For exposure, top picks are IOI Corp (BUY; TP: RM4.67), KLK (BUY; TP: RM26.64), and IJM Plantations (BUY; TP: RM2.31).

DATA HIGHLIGHTS

Palm oil stockpile on uptrend for the second straight month. Palm oil stockpile rose 7.1% MoM to 1.55m tonnes in Apr-21, as higher exports were more than offset by higher production and lower domestic disappearance.

Output increased for the second consecutive month. Total output rose for the second consecutive month, by 7.0% MoM to 1.52m tonnes in Apr-21, due mainly to seasonal effect, we believe. The MoM increase in total output was boosted mainly by a surge in CPO output from East Malaysia (+11.5% MoM, of which Sabah and Sarawak recorded MoM output growth of 16.7% and 6.4%, respectively). Peninsular Malaysia output on the other hand, increased by a smaller magnitude of 3.7% MoM.

Exports to India remained on uptrend, while exports to China recovered on seasonal factor. Total exports remained on uptrend, rising by 12.6% MoM to 1.34m tonnes in Apr-21, which was in turn boosted by higher exports to China and India (due to low stockpile, we believe). Cumulatively, total exports eased by 7.3% to 4.37m tonnes in 4M21, and we believe this was due mainly to lower palm oil output YTD.

Exports for the first 10 days of May-21. Preliminary data indicate that exports continued to rise in May-21. Both Amspec and Intertek (independent cargo surveyors ) indicated that palm oil exports increased by 36.8% and 29.6%, respectively, for the first 10 days of May-21.

HLIB’s VIEW

Forecast. Stockpile in Malaysia will likely remain low in May-21, as we believe potentially weaker exports demand from India (taking cue from the recent resurgence in Covid-19 cases, which will likely result in weaken India’s demand for edible oil, including palm oil) will likely be mitigated by resilient demand from China and seasonally weaker output (historically, fasting month did have an impact on palm oil production).

We maintain our 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.

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), and IJM Plantations (BUY; TP: RM2.31).

Source: Hong Leong Investment Bank Research - 11 May 2021