- According to the recent ETP (Economic Transformation
Programme) report, the palm oil industry in Malaysia performed fairly
well.
- The first EPP (entry point project), which aims to
accelerate replanting and new plantings of oil palm trees, achieved 81% of its
126,500ha target.
- Also, a total of 2,189 units of Cantas and 3,633 units of
diamond sharpeners have been bought by planters. These equipment help to
improve 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 trees
in the country are replaced with younger ones.
- This would improve the country’s average FFB yield in the
longer-term. Average FFB yield of the palm oil industry in Malaysia was 19.2
tonnes/ha in 2009.
- We believe that the increase in replanting of oil palm
trees in the past few years was supported by subsidies given to smallholders.
- Based on the replanting target of 126,500ha and the
replanting grant of RM297mil announced under Budget 2011, we estimate the
replanting subsidy at RM2,348/ha. This was higher than replanting subsidy of
RM1,000/ha granted in 2008.
- We are unsure if any replanting carried out by
smallholders would still be eligible for subsidies this year.
- However, we reckon that the subsidy would be a way to
encourage smallholders to replant as CPO prices are currently above
RM3,400/tonne.
- We maintain our positive view on the plantation sector. We
believe that CPO prices would remain resilient supported by lower soybean oil
production in South America and softer growth of palm oil production in
South-East Asia.
Source: AmeSecurities
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