Palm oil stockpile rebounded in Jan-23, rising by 3.3% MoM to 2.27m tonnes, as seasonally lower output and higher domestic disappearance were more than offset by lower exports. We believe stockpile will resume on downtrend in Feb- 23 on the back of (i) seasonally low production cycle, and (ii) higher exports demand from Feb-23, as higher biodiesel admixture from Feb-23 and lower export quota in Indonesia will likely boost export demand in Malaysia. Maintain 2023-24 CPO price assumptions of RM4,000/mt and RM3,800/mt, and NEUTRAL stance on the sector. For exposure, we favour integrated players such as KLK (BUY; TP: RM25.19) and IOI (BUY; TP: RM4.16).

DATA HIGHLIGHTS

Weaker exports pushed Jan-23 stockpile higher. Palm oil stockpile rebounded in Jan-23, rising by 3.3% MoM to 2.27m tonnes, as seasonally lower output (-14.7%) and higher domestic disappearance were more than offset by lower exports (-23.0%). The stockpile came in higher than Bloomberg consensus median estimate of 2.23m tonnes, due to higher-than-expected output and lower-than-expected exports.

Lowest output since Feb-22. Output remains on downtrend, declining by 14.7% to 1.38m tonnes in Jan-23, due to seasonal factor. During Jan-23, output contribution from Peninsular Malaysia and East Malaysia was 15.8% and 13.6% MoM, respectively.

Exports plunged in Jan-23. Exports fell by -23.0% to 1.14m tonnes in Jan-23, and we believe the decline in exports was dragged mainly by lower demand from India (given its high vegetable oil inventory level) and seasonally weaker demand from China. During Jan-23, exports of CPO and PPO declined by -42.0% and -13.8%, respectively.

Exports during first 10 days of Feb-23. Preliminary data from Anspec Agri indicated that palm oil shipments from Malaysia surged by 32.5% MoM to 312.1k tonnes.

HLIB’s VIEW

Stockpile will likely resume on downtrend in Feb-23. We believe stockpile will resume on downtrend in Feb-23 on the back of (i) seasonally low production cycle, and (ii) higher exports demand from Feb-23, as higher biodiesel admixture from Feb-23 and lower export quota in Indonesia will likely boost export demand in Malaysia.

Forecast. We maintain 2023-24 CPO price assumptions of RM4,000/mt and RM3,800/mt. We believe CPO price will sustain at above RM4,000/mt over the next few months (possibly until 1Q23), and start trending down from 2Q23 onwards.

Maintain NEUTRAL. We reiterate our Neutral stance on the sector, given the absence of notable earnings growth catalyst. For exposure, we favour integrated players such as KLK (BUY; TP: RM25.19) and IOI (BUY; TP: RM4.16) over purer upstream players, as earnings of integrated players tend to be better insulated amidst volatile palm product price trend.

Source: Hong Leong Investment Bank Research - 13 Feb 2023