Journey to Wealth
Plantation - Palm oil close to achieving ETP targets OVERWEIGHT
- According to the recent ETP (Economic TransformationProgramme) report, the palm oil industry in Malaysia performed fairlywell.
- The first EPP (entry point project), which aims toaccelerate replanting and new plantings of oil palm trees, achieved 81% of its126,500ha target.
- Also, a total of 2,189 units of Cantas and 3,633 units ofdiamond sharpeners have been bought by planters. These equipment help toimprove productivity of the workers in the oil palm estates.
- This year, the replanting target has been raised to 140,000ha.
- We view this development positively.
- Replanting would help ensure that the older oil palm treesin the country are replaced with younger ones.
- This would improve the country's average FFB yield in thelonger-term. Average FFB yield of the palm oil industry in Malaysia was 19.2tonnes/ha in 2009.
- We believe that the increase in replanting of oil palmtrees in the past few years was supported by subsidies given to smallholders.
- Based on the replanting target of 126,500ha and thereplanting grant of RM297mil announced under Budget 2011, we estimate thereplanting subsidy at RM2,348/ha. This was higher than replanting subsidy ofRM1,000/ha granted in 2008.
- We are unsure if any replanting carried out bysmallholders would still be eligible for subsidies this year.
- However, we reckon that the subsidy would be a way toencourage smallholders to replant as CPO prices are currently aboveRM3,400/tonne.
- We maintain our positive view on the plantation sector. Webelieve that CPO prices would remain resilient supported by lower soybean oilproduction in South America and softer growth of palm oil production inSouth-East Asia.
Source: AmeSecurities
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