CPO production declined in May by 7.8% yoy and 2.1% mom to 1.53m MT. This is the first yoy CPO production decline since Jun17, partly due to the fewer working days in May this year with the 14th GE holidays. Exports of palm oil were lower by 14.3% yoy and 15.7% mom to 1.29m MT, after the reinstatement of the palm-oil export tax. However, palm-oil inventory continued to trend lower to 2.17m MT, the lowest level in the past 8 months, largely due to higher local consumption. Overall, we maintain our NEUTRAL plantation sector rating. Our top Buys for the sector are FGV and Genting Plantation.

May Production Down Mom and Yoy to 1.53m MT

Malaysia’s CPO production in May declined by 7.8% yoy and 2.1% mom to 1.53m MT. This is the first yoy CPO production decline since Jun17. FFB yield was lower in Peninsular Malaysia and Sabah at 1.33 MT/ha (-8.9% yoy) and 1.39 MT/ha (-13.7% yoy), respectively, but partially mitigated by better FFB yield in Sarawak by 4% yoy to 1.31 MT/ha. The decline in production was partly due to the fewer working days in May this year given the 14th General Election (GE) holidays. For 5M18, total CPO production increased by 5.3% yoy to 7.59m MT. We expect Malaysia’s CPO production to improve going forward and we expect 2018E production to reach above the 20m MT level (2017: 19.92m MT) for the first time (Oil World 2018 CPO production forecast: 20.6m MT).

Lowest Inventory Level in 8 Months

Palm-oil exports in May plunged by 14.3% yoy and 15.7% mom to 1.29m MT, after the reinstatement of the Malaysian palm-oil export tax in the same month. Selected key buyers including India and the EU bought less of Malaysia’s palm-oil products, declining by 72.5% and 19.6% yoy, respectively, to 75.3k MT and 136.2k MT. Meanwhile, China, Pakistan and Turkey bought more palm-oil products, increasing by 70.6%, 18.9% and >100% yoy, respectively, to 193.1k MT, 128.7k MT and 98k MT. For 5M18, total exports have increased by 10.1% yoy to 7.1m MT. Despite the drop in palm-oil exports, inventory declined further in May to the lowest level in 8 months at 2.17m MT, which we believe was largely due to higher local consumption.

Source: Affin Hwang Research - 12 Jun 2018