Palm oil stockpile increased for the first time since Oct-21, by 11.5% MoM to 1.64m tonnes in Apr-22, driven by higher output (+3.6%) and weaker exports (- 17.7%) . Palm oil stockpile will likely dip in May-22, on the back of seasonally lower CPO production and stronger exports (following Indonesian government’s recent move to widen its export ban on cooking oil’s raw materials). We raise our 2022-2024 CPO price assumptions to RM5,500/4,500/4,500 per tonne (from RM4,300/3,300/3,300 per tonne previously). Earnings forecasts, TPs and ratings on individual planters (to reflect high CPO price and production cost assumptions), on the other hand, will be adjusted in the upcoming results season. Maintain OVERWEIGHT stance on the sector. Top picks remain FGV (BUY; TP: RM2.43); IOI Corp (BUY; TP: RM5.09), KLK (BUY; TP: RM32.43) and Sime Darby Plantation (BUY; TP: RM5.95).

DATA HIGHLIGHTS

Stockpile rises for the first time since Oct-21. Palm oil stockpile resumed on uptrend, rising by 11.5% MoM to 1.64m tonnes in Apr-22, driven by higher output and weaker exports. The stockpile came in marginally lower than Bloomberg consensus median estimate of 1.66m tonnes, due mainly to lower-than-expected output.

Output remained on uptrend for the second consecutive month. CPO output increased by 3.6% MoM to 1.46m tonnes, on the back of continued seasonal output recovery from key producing states. Cumulatively, CPO output inched up by 1.5% to 5.26m tonnes in 4M22, driven mainly by an output surge in Jan-22.

Exports weakened in Apr-22. Exports declined by 17.7% MoM in Apr-22, dragged by lower exports to China (-50.8%), EU (-23.2%) and Pakistan (-90.3%), due to several factors including (i) strict Covid-19 lockdowns, which hampered palm oil shipments to China, and (ii) demand destruction as a result of high prices.

Exports for the first 10 days of May-22. Preliminary data from Amspec indicated that palm oil shipments surged by 38.9% to 276.6k tonnes during the first 10 days of May - 22.

HLIB’s VIEW

Stockpile will likely dip in May-22 on the back of seasonally lower CPO production (arising from Ramadhan month) and stronger exports (following Indonesian government’s recent move to widen its export ban on cooking oil’s raw materials).

CPO price assumptions raised in 2022-2024. YTD, CPO price averaged at ~RM6,300/tonne, significantly higher than our projected RM4,300/tonne for 2022. We believe palm oil prices will remain at elevated levels for a while, supported by supply disruption of major vegetable oil arising from less favourable weather conditions, geopolitical tension, and protracted fertiliser supply. Hence, we raise our 2022-2024 CPO price assumptions to RM5,500/4,500/4,500 per tonne (from RM4,300/3,300/3,300 per tonne previously). We will adjust earnings forecasts, TPs and ratings on individual planters (to reflect high CPO price and production cost assumptions) in the upcoming results season (starting from 20 May 2022).

Maintain OVERWEIGHT. We maintain 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. Top picks remain 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 - 11 May 2022