Indonesian government has widened its export ban on cooking oil’s raw materials to include CPO, RBD palm oil and used cooking oil effective from 28 Apr 2022, in order to further improve the cooking oil supply situation in Indonesia. While the move is negative for plantation players with significant exposure in Indonesia, this will be offset by higher palm oil prices (as the widening of export ban will further tighten vegetable oil supply situation worldwide). CPO prices will likely surpass our 2022-24 CPO price projections of RM4,300/3,300/3,300 per tonne. As such, we are in the midst of reviewing our CPO price assumptions. We reiterate our Overweight stance on the sector, For exposure, we favour players with less upstream exposure in Indonesia, such as FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).

NEWSBREAK

Indonesia’s export ban now covers CPO, RBD palm oil and use cooking oil. The Indonesian government has widened its export ban on cooking oil’s raw materials to include CPO, RBD palm oil and used cooking oil effective from 28 Apr 2022, in order to further improve the cooking oil supply situation in Indonesia. The export ban will be lifted once domestic demand is fulfilled, as the country also needs tax revenue, exports and trade surplus, according to Indonesia’s President Joko Widodo.

HLIB’s VIEW

While the move is negative for plantation players with significant exposure in Indonesia, this will be offset by higher near term palm oil price (as the widening of export ban will further tighten vegetable oil supply situation worldwide).

Forecast. CPO prices will likely surpass our 2022-24 CPO price projections of RM4,300/3,300/3,300 per tonne. As such, we are in the midst of reviewing our CPO price assumptions. Based on our estimates, every RM100/mt raise in our CPO price projection will lift earnings forecasts for plantation stocks under our coverage by 3.5- 15.0%.

Stay OVERWEIGHT. We reiterate our Overweight stance on the sector, underpinned by (i) high near term CPO prices (which will in turn translate to good near term earnings prospects), (ii) easing ESG concerns, and (iii) decent valuations. For exposure, we favour players with less upstream exposure in Indonesia, such as FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).

Source: Hong Leong Investment Bank Research - 28 Apr 2022