• Stay NEUTRAL, with profit taking strategy maintained, given the continued uncertainty of the export policy in Indonesia. The maximum tax and levy has been reduced in Indonesia, assuming the domestic market obligation (DMO) is fulfilled. However, a special tax of USD200/tonne will be imposed on those wanting an exemption from the DMO. Keep BUY on the winners of this change in structure – Bumitama Agri and Wilmar.

• Maximum tax and levy reduced in Indonesia, assuming DMO is fulfilled. The Indonesian Government has proposed to reduce the combined maximum CPO export tax and levy rate per tonne to USD488 from USD575 to encourage shipments. The maximum CPO export rate is now revised up to USD288/tonne (from USD200), while the maximum CPO levy rate is reduced to USD200/tonne (from USD375) (see Figures 1 and 2) No further details on the tax structure have been announced, including the effective date.

• If DMO is not fulfilled, a new special export tax will be imposed. On top of the export tax and levy rate revision, the Government will be implementing a new special tax for the DMO exemption of USD200/tonne to allow companies to obtain shipment permit without having to wait to verify their domestic sales obligation. This is aimed at speeding up the trade process to ensure producers with overflowing stockpiles can export while farmers can sell their FFB. Regulation on the special export policy is set to be issued in 1-2 days. DMO pricing for CPO is now at IDR10,600/kg (MYR3,200/tonne), up from IDR9,300/kg (MYR2,700/tonne).

• While the nett effect of the change in tax and levy rate is a reduction, the addition of the special export tax is punishing (see Figure 3). This would be punishing for companies operating in Indonesia which previously did not have an avenue to sell their PO domestically and had to find ways to do so in order to get an export permit. Companies affected by this could include Kuala Lumpur Kepong and Sime Darby Plantation. We understand that KLK has found it difficult to obtain export permits for its PO thus far. As for SDPL, it had previously obtained an export permit for a 6-month period for a fixed volume in May, which may or may not have been exhausted.

• Companies that sell domestically would benefit from the change in tax structure. However, other companies operating in Indonesia like Genting Plantation and IOI Corp that only sell their output domestically would not need to pay the special tax and would therefore benefit from the change in tax structure. The SGX-listed and JSX-listed companies would also not need to pay the special tax as they would already have avenues to sell their oil domestically.

• Stay NEUTRAL, with profit taking strategy maintained, given the continued uncertainty of the export policy in Indonesia. Most companies continue to stockpile while these new policies are being sorted out. We understand that most companies are able to keep approximately another month of stock before storage capacity runs out. BUY the winners of this change in structure – BAL and WIL.

Source: RHB Securities Research - 9 Jun 2022