Sign up to SahamTalk to save a watchlist for easy access to your favorite stocks
Handle
N/A
Handle
 
P H
Sep 12,2017 18:29:14

Plantation – Is The Current CPO Price Strength Sustainable?

Malaysian inventory levels are now at 1.94m tonnes, translating to an annualised stock/usage ratio of 10.3%. This is above the historical average of 9.5%, signalling that stock levels are officially in a surplus. With demand continuing to disappoint, with most of the main markets in negative territory YTD, we do not expect the current strength in CPO prices to persist. This would coincide with an anticipated softening of soybean prices once the initial impact of hurricanes in the US wear off and weather normalises. No change to our UNDERWEIGHT stance on the sector.

  • Malaysia’s CPO production rose 13.6% YoY in YTD-Aug, although August’s output was down by a slight 0.9% MoM from July. We believe production would pick up in the next couple of months, as most planters are expecting peak output to be in September/October. For the whole of 2017, we expect Malaysia’s CPO output growth to moderate to 10-12% YoY. 
     
  • Exports rose by 6.4% MoM in August, bringing YTD exports to a 2% increase YoY. In YTD-Aug, exports saw a rise to Pakistan (+14% YoY) and Philippines (+6%). This was offset by a decline in exports to China (-4% YoY) India (-29%) and the US (- 20.5%), while exports to the EU was flat YoY.
     
  • Inventory rose 8.8% MoM to 1.94m tonnes in August, despite a dip in output. Annualised stock/usage ratio for August is now at 10.3% (up from 9.5% in July), which is now above the 15-year historical average of 9.5%. This means that stock levels are now officially in a surplus situation. We expect to see a continuation of rising inventory levels, as production resumes its recovery during the peak seasonal period. 
     
  • 2Q17 results disappointed, as six companies (IOI Corp, Genting Plantations, TSH Resources, Kuala Lumpur Kepong, IJM Plantations and Felda Global Ventures) reported results that were below expectations. Two (Sime Darby and Sawarak Oil Palms) reported results above expectations, with only CB Industrial Product in line. We continue to see strong YoY FFB output growth in 2Q17, although most companies saw lower QoQ production growth. We observe Indonesia continuing to drive this growth, despite most companies guiding for growth to start moderating in 2H17. In Malaysia, while the growth recovery has not been consistent throughout the country, most companies are guiding for output to pick up more strongly in 2H17, with the peak output slated to be in September/October for Malaysia. Most companies continued to guide for strong double-digit FFB growth in 2017, coming from a low base in 2016. For those with downstream operations, we saw stronger QoQ margins, as feedstock prices fell. Most companies continue to guide for stronger margins at their downstream divisions, as selling prices have risen, while feedstock prices continue to weaken.
     
  • We maintain our UNDERWEIGHT rating on the sector, on the back of a strong output recovery and weak demand dynamics. Catalysts include a positive change to global demand and any extreme weather occurrences that would have an impact on global vegetable oil output. Our Top BUY is Sarawak Oil Palms while our Top SELL is London Sumatra. (Hoe Lee Leng)

$AALI $ANJT $BWPT $DSNG $GOLL $GZCO $LSIP $MAGP $PALM $SGRO $SIMP $SMAR $SSMS $TBLA $UNSP

hide
P H
Apr 23,2015 10:35:47
London Sumatra is among the cheapest plantation stocks in Indonesia, at a fire-sale EV/ha of USD6k. Maintain BUY, with a TP of IDR2,366 (55%). While palm oil prices are still lacklustre and investor interest in the sector remains subdued, we believe the current cycle has already bottomed. We cut our CPO price estimate but roll forward our valuations – as we believe investors should start looking ahead into 2016. ¨ Sluggish prices but cycle has hit a bottom already. Palm oil prices continue to be lacklustre and investor interest in the sector is muted. This is understandable, as palm oil prices have been in a multi-year downcycle. Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed. ¨ Biodiesel mandates in Indonesia and Malaysia a possible catalyst. While Indonesia’s B10 biodiesel programme is imminent, palm oil prices have languished so far this year. The YTD average price per tonne is only at MYR2,260 vs our average assumption of MYR2,500. We cut our 2015 price assumption to MYR2,350 per tonne, which still implies stronger prices going forward. Biodiesel mandates in both Malaysia and Indonesia may give palm oil prices a jumpstart, as the quantum of demand is significant. We expect the average price to strengthen to MYR2,500 per tonne next year. ¨ Long-term CPO production growth eases. While biodiesel may jump-start palm oil prices, a sustained upcycle in prices is commonly supported by a structural slowdown in production growth. Judging from the slowdown in new planting in Indonesia, this may happen by 2017 at the latest. ¨ Lowering FY15 CPO price. We revise our effective CPO price assumptions for London Sumatra to IDR8,162 per kg for FY15 (from IDR8,787), and to IDR8,383 per kg for FY16 (from IDR8,796). Our forecasts are reduced accordingly by 8.2% and 2.5%. ¨ Rolling forward valuation to 2016. We roll forward our valuation to an 16x P/E, which leads to our TP being marginally reduced to IDR2,366 from IDR2,395 previously. London Sumatra trades at undemanding 10x-11x forward earnings and a fire-sale EV/ha level of USD6k. $LSIP
hide
P H
Apr 23,2015 10:35:37
London Sumatra is among the cheapest plantation stocks in Indonesia, at a fire-sale EV/ha of USD6k. Maintain BUY, with a TP of IDR2,366 (55%). While palm oil prices are still lacklustre and investor interest in the sector remains subdued, we believe the current cycle has already bottomed. We cut our CPO price estimate but roll forward our valuations – as we believe investors should start looking ahead into 2016. ¨ Sluggish prices but cycle has hit a bottom already. Palm oil prices continue to be lacklustre and investor interest in the sector is muted. This is understandable, as palm oil prices have been in a multi-year downcycle. Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed. ¨ Biodiesel mandates in Indonesia and Malaysia a possible catalyst. While Indonesia’s B10 biodiesel programme is imminent, palm oil prices have languished so far this year. The YTD average price per tonne is only at MYR2,260 vs our average assumption of MYR2,500. We cut our 2015 price assumption to MYR2,350 per tonne, which still implies stronger prices going forward. Biodiesel mandates in both Malaysia and Indonesia may give palm oil prices a jumpstart, as the quantum of demand is significant. We expect the average price to strengthen to MYR2,500 per tonne next year. ¨ Long-term CPO production growth eases. While biodiesel may jump-start palm oil prices, a sustained upcycle in prices is commonly supported by a structural slowdown in production growth. Judging from the slowdown in new planting in Indonesia, this may happen by 2017 at the latest. ¨ Lowering FY15 CPO price. We revise our effective CPO price assumptions for London Sumatra to IDR8,162 per kg for FY15 (from IDR8,787), and to IDR8,383 per kg for FY16 (from IDR8,796). Our forecasts are reduced accordingly by 8.2% and 2.5%. ¨ Rolling forward valuation to 2016. We roll forward our valuation to an 16x P/E, which leads to our TP being marginally reduced to IDR2,366 from IDR2,395 previously. London Sumatra trades at undemanding 10x-11x forward earnings and a fire-sale EV/ha level of USD6k.
Bull
Quotes delayed, except where indicated otherwise.
PALM
450.00 0.00 (0.00%)
Provident Agro Tbk.
Last Update 11:48:13