Indonesian government will lift the ban on palm oil exports effective from 23 May 2022, following improvements in the supply of bulk cooking oil, and taking into consideration of the welfare of 17m workers in the domestic palm oil industry. The latest move will likely result in a knee jerk correction in palm oil price, as it eases concerns on vegetable oil supply situation (Indonesia’s CPO output accounted for >20% of the world’s vegetable oil output in 2021). Nevertheless, we believe CPO price will remain at elevated levels despite having anticipated a knee-jerk correction, given the output uncertainties on major oilseeds (such as soybean, corn and sunflower seed). Hence, we are maintaining our 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne and Overweight stance on the sector. For exposure, our top picks are 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 to lift palm oil export ban from 23 May 2022. Indonesian government will lift the ban on palm oil exports effective from 23 May 2022, following improvements in the supply of bulk cooking oil (although bulk prices have yet to decline to its targeted 14,000 IDR/litre), and taking into consideration of the welfare of 17m workers in the domestic palm oil industry.

Recall, Indonesia had on 28 Apr 2022 halted shipments of CPO and some derivative products, in an attempt to tame soaring domestic cooking oil prices.

HLIB’s VIEW

Knee-jerk correction in palm oil price. The latest move will likely result in a knee jerk correction in palm oil price, as it eases concerns on vegetable oil supply situation (Indonesia’s CPO output accounted for >20% of the world’s vegetable oil output in 2021). Nevertheless, we believe CPO price will remain at elevated levels despite having anticipated a knee-jerk correction, given the output uncertainties on major oilseeds (such as soybean, corn and sunflower seed).

Forecast. Maintain 2022-24 CPO Price Assumptions of RM5,500/4,500/4,500 Per Tonne.

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, our top picks are 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 - 20 May 2022