HLBank Research Highlights

Plantation - 5-month Low Stockpile

HLInvest
Publish date: Tue, 11 Jan 2022, 09:16 AM
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This blog publishes research reports from Hong Leong Investment Bank

Palm oil stockpile shrank by 12.9% MoM to 1.58m tonnes in Dec-21, dragged mainly by lower output (-11.3%). Moving into Jan-22, we believe slower exports to China (arising from seasonal factor) and India (on the back of high prices) will be mitigated by seasonally lower palm production cycle (exacerbated by the onset of La Nina episode). Maintain 2022-23 CPO price assumptions of RM3,500/2,900 per tonne and OVERWEIGHT stance on the sector. Top picks are IOI Corp (BUY; TP: RM4.35), KLK (BUY; TP: RM25.62), Sime Darby Plantation (BUY; TP: RM5.03), and TSH Resources (BUY; TP: RM1.35).

DATA HIGHLIGHTS

Stockpile remained on downtrend. Palm oil stockpile remained on a downtrend (for the second consecutive month), declining by 12.9% MoM to 1.58m tonnes in Dec-21, dragged mainly by lower output (-11.3%), but partly mitigated by a 3.5% decline in exports. The stockpile missed Bloomberg consensus median estimate of 1.7m tonnes, due mainly to lower-than-expected output and mildly higher-than-expected exports.

Lowest output since Mar-21. Output fell 11.3% MoM to 1.45m tonnes in Dec-21, due to seasonal factor and floods in parts of key-growing areas. In 2021, output fell 5.3% to 18.1m tonnes, dragged by labour shortfall arising from border closure (due to Covid-19 pandemic) and floods in parts of key-growing areas in Dec-21.

Exports fell on seasonal factor. Exports fell 3.5% MoM to 1.41m tonnes in Dec-21, dragged mainly by lower exports to China (-27.3%), India (-10.8%) and Pakistan (-8.7%), but was partly mitigated by higher exports to EU (+19.7%). We believe lower exports to key destinations were due mainly to seasonal factor (as winter season typically slows palm oil demand from China) and demand destruction arising from high palm oil price.

Exports for the first 10 days of Jan-22. Preliminary data from independent cargo surveyors (Amspec Agri and Intertek) indicated that palm oil exports fell 41.4-41.6% MoM during the first 10 days of Jan-22.

HLIB’s VIEW

Forecast. Moving into Jan-22, we believe slower exports to China (arising from seasonal factor mentioned as above) and India (on the back of high prices) will be mitigated by seasonally lower palm production cycle (exacerbated by the onset of La Nina episode and labour shortfall). Maintain 2022-23 CPO price assumptions of RM3,500/2,900 per tonne. We believe CPO price will remain elevated in the near term (possibly until 1Q22), supported by (i) La Niña phenomenon, which will likely result in delay in soybean planting in South America and (ii) seasonally lower production cycle (which is expected to last until 1Q22), and this bodes well for near term CPO price. While we still hold the view that CPO price will start trending down from 2Q22 onwards – this hinges on several uncertainties including (i) the entrant of foreign workers into Malaysian shores, which could be delayed, as recent Omicron variant has resulted in the government tightening of existing standard operating procedures (SOPs) on the entry of foreign workers, and (ii) surging fertiliser prices, which may result in planters (in particular smallholders) reducing fertiliser application to oil palms, hence derailing the anticipated yield recovery.

Maintain OVERWEIGHT stance on the sector, underpinned by good near term earnings prospects (arising from high CPO prices) and commendable valuations. Top picks are IOI Corp (BUY; TP: RM4.35), KLK (BUY; TP: RM25.62), Sime Darby Plantation (BUY; TP: RM5.03), and TSH Resources (BUY; TP: RM1.35).

 

Source: Hong Leong Investment Bank Research - 11 Jan 2022

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Be the first to like this. Showing 11 of 11 comments

calvintaneng

So far only Hong Leong Research gives due recognition to palm oil as Cpo has gone up the world record high over Rm5,000 a ton

Hong Leong Research is honest and tell the whole truth

So many other IB banks embraced the Big Lie of ESG against palm oil and gave neutral or underweight call on palm oil

This is very unfortunate for Malaysia being the world 2nd largest producer of palm oil and yet it's institutions sabotage it by issuing negative write-ups

If Palm oil can earn real substantial profits over 100% to 200% are still neglected then why do these dirty ib bankers tell people to chase other inferior stocks of little or no earnings ?

This is the reason why 90% of market players in Malaysia eventually proven to have lost money in the stock market year after year without fail

2022-01-12 07:35

ahbah

Plantation sector ... the gold mine sector of our mkt now !!!

2022-01-12 12:30

stockraider

The analysts need to wake up loh!

Stop manipulating the obvious like ESG on palmoil loh, that over the longer does not work mah!

Palmoil...is actually contributing positive ESG....bcos without palmoil ....the Environment will be more damage mah!

2022-01-12 13:49

smartly

but sadly, this sector still remain doom as usual...

2022-01-12 14:30

smartly

despite the shouting by calvintaneng for ages but still no sign of glory...

2022-01-12 14:33

ahbah

Oil palm is very land efficient, producing more oil n using less land compared with

other oil producing plants.

2022-01-12 15:27

ahbah

Other oil producing plants destroy more forest n use more land to cultivate to

produce oil than oil palm.

2022-01-12 16:37

smartly

environment friendly.

2022-01-12 17:02

newguy0801

Palm oil is definitely not environmental friendly. It is just better than other oil producing plants in terms of environmental impact (land usage and plant productivity).

2022-01-12 17:05

newguy0801

What ahbah said is true but what you said is totally wrong lol, smartly.

2022-01-12 17:05

smartly

aiyo. we found another smart alec. better than calvintaneng !

2022-01-12 17:09

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