Palm oil stockpile dipped by 7.4% MoM to 1.52m tonnes in May-22, due mainly to stronger exports and marginally lower production. Stockpile will likely resume on uptrend from Jun-22, on the back of seasonally higher output trend, and the anticipated resumption in palm supplies from Indonesia. Besides, demand from China (a key export destination) will likely remain tepid, as recent renewed lockdowns in parts of Shanghai and Beijing suggests that demand recovery in China may not happen soon. Maintain 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne and OVERWEIGHT stance on the sector. Top picks are FGV, IOI Corp, KLK, and Sime Darby Plantation.

DATA HIGHLIGHTS

Stockpile dips on higher exports. Palm oil stockpile dipped by 7.4% MoM to 1.52m tonnes in May-22, due mainly to stronger exports and marginally lower production. The stockpile came in marginally higher than Bloomberg consensus median estimate of 1.51m tonnes, due mainly to higher-than-expected output.

Marginally lower output. Output declined marginally, by 0.1% MoM to 1.46m tonnes, as the declines in output contribution from most producing states were mitigated by higher output in Sarawak and Terengganu. YTD, production fell by 0.5% to 6.7m tonnes in 5M22.

5-month high exports. Exports resumed on uptrend, rising by 26.7% MoM to 1.36m tonnes in Jun-22, as a result of a 3-week palm oil exports ban by Indonesia, which have resulted in palm oil buyers turned to Malaysian supplies. YTD, exports inched up by 5.9% to 5.98m tonnes in 5M22.

Exports for the first 10 days of Jun-22. Preliminary data from intertek indicated that palm oil exports increased by 6.2% MoM to 415.3k tonnes during the first 10 days of Jun-22, mainly on the back of higher exports to China, India, Middle East and USA.

HLIB’s VIEW

Stockpile could resume on uptrend from Jun-22. Stockpile will likely resume on uptrend from Jun-22, on the back of seasonally higher output trend, and the anticipated resumption in palm supplies from Indonesia (following Indonesian government’s recent revision in export tax and levy, in an attempt to encourage palm oil shipments). Besides, demand from China (a key export destination) will likely remain tepid, as recent renewed lockdowns in parts of Shanghai and Beijing suggests that demand recovery in China may not happen soon.

Forecast. Maintain 2022-24 CPO price assumptions of RM5,500/4,500/4,500 per tonne.

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: RM2.53); IOI Corp (BUY; TP: RM5.07), KLK (BUY; TP: RM34.16) and Sime Darby Plantation (BUY; TP: RM6.06).

Source: Hong Leong Investment Bank Research - 13 Jun 2022