- CPO price for April delivery rose RM30/tonne to
RM3,512/tonne yesterday and that for June delivery closed RM22/tonne higher at
RM3,481/tonne.
- The rise in CPO prices was underpinned by expectations
that soybean production in South America would be weak. Oil World has forecast
world soybean output to decline 8.1% to 242.9mil tonnes in 2011/2012F due to
the unfavourable weather in South America.
- Also according to independent cargo surveyors, palm oil
exports from Malaysia rose 6.6% to 7.7% in the first 25 days of March compared
to the same period in February.
- According to
Bloomberg, the average CPO price was at RM3,236/tonne year-to-date. Consensus
is assuming an average CPO price of RM3,200/tonne to RM3,400/tonne for this year,
while we have an average CPO price assumption of RM3,300/tonne for Malaysian plantation
companies.
- We believe that pure plantation companies would benefit
from the improvement in CPO prices compared to the integrated ones.
- For companies like IOI Corporation and Kuala Lumpur
Kepong, we estimate that their net profit would improve by between 2% and 3%
for every RM100/tonne increase in CPO price.
- For the purer ones like IJM Plantations and TH
Plantations, net profit would rise 4% to 7% for every RM100/tonne expansion in
CPO price.
- In Indonesia, the upstream players are expected to record
lower CPO prices compared to their counterparts in Malaysia. This is due to
higher infrastructure costs and effects of the export tax structure in
Indonesia.
- In spite of this, the price differential between CPO in
Malaysia and Indonesia has narrowed from RM600-700/tonne last year to
RM300-400/tonne early this year.
- It remains to be seen if the price differential would
continue to decline especially during the peak output season in 2H of the year.
A reason why the CPO price differential between Malaysia and Indonesia has narrowed
is because palm oil is going through a low output season currently.
- We remain positive on the plantation sector. We believe
that CPO prices would remain resilient, supported by slower growth of palm oil
supply in Malaysia and Indonesia and lower soybean production in South America.
Source: AmeSecurities
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