According to Reuters,
Tan Sri Bernard Dompok mentioned that Malaysia and Indonesia had agreed to
reduce oil palm plantation expansion and to increase palm oil consumption in
Malaysia by promoting biodiesel usage.
The objective is to prevent further declines in CPO prices. In addition, he was
quoted as saying that the Malaysian cabinet will discuss possible changes to
its CPO export tax regime in a meeting on Friday. The news is positive to CPO
prices as the decision to reduce oil palm plantation expansion will reduce the
global CPO supply from 2015 onwards. For the immediate term, the CPO outlook
also looks better as additional CPO usage by the local biodiesel industry
should result in a lower inventory. That said, the upcoming MPOB inventory
level should see it reaching an all-time high of 2.43m mt, hence capping any
strong price upside potentials. We are maintaining our NEUTRAL call on the
Plantation sector with our average CPO
price estimates for CY12-CY13 remaining unchanged at RM3,150-RM3,100 per mt.
Our top picks are TSH (OP; TP: RM2.95) and UMCCA (OP; TP: RM8.05) for their
double-digit FFB growth prospects. We maintain meanwhile MARKET PERFORM calls
on SIME (TP: RM10.30), IOICORP (TP: RM5.25), KLK (TP: RM24.86), GENP (TP: RM9.70) and IJMP (TP: RM3.65), and
an UNDERPERFORM call on TAANN (TP: RM3.75) due to its timber division weakness.
Reducing oil palm
plantation expansion and increasing biodiesel usage. According to Reuters,
Tan Sri Bernard Dompok mentioned that Malaysia and Indonesia had agreed to work
together to prevent further declines in CPO prices. The cooperation include
reducing oil palm plantation expansion and to increase palm oil consumption in
Malaysia by promoting biodiesel usage. In addition, Tan Sri Bernard Dompok said
that the Malaysian cabinet would discuss possible changes to its CPO export tax
regime in a meeting on Friday. Recall that last Friday, Malaysia had delayed
taking a decision on a proposal to cut CPO export taxes to 8-10% from the
current level of 23% as the cabinet needed more time to study the plan.
Good news for CPO
price in the longer term. As
Malaysia and Indonesia account for ~87% of the global CPO supply, we believe
that the decision to reduce the oil palm plantation expansion will reduce the
global CPO supply from 2015 onwards as oil palm trees need about 3 years before
they can start producing FFBs. The CPO shorter term outlook also looks better as
additional CPO usage by the local biodiesel industry should result in a lower
inventory. Assuming the current Brent crude oil price of US$112 per barrel can
be sustained, CPO conversion into biodiesel is economically feasible with a
breakeven cost of ~RM2,300 per mt based on our estimate. Hence, we believe that
CPO prices are almost close to reach their floor levels as any drops beyond
this price will result in it being channeled to biodiesel usage.
However, the upcoming
MPOB inventory level should reach an all-time high of 2.43m mt. We believe that Malaysia’s CPO inventory
for Sep-12 (to be released tomorrow) could increase 15% MoM as we expect the
CPO production of 1.83m mt to continue exceeding the export volume of 1.46m mt.
We have assumed the production to increase 10% MoM in line with the seasonally
higher production this month with a higher number of harvesting days after the
Hari Raya holidays in Aug-12. Meanwhile, exports growth MoM should be weak at
2% MoM as demand remains sluggish due to the slower economic growth in the
major CPO consuming countries such as China and India. Hence, although the
above news of the collaboration between Malaysia and Indonesia is positive to
CPO prices, the upside could be capped if the MPOB inventory level turns out to
be higher than expected.
Prefer young
planters, top picks are TSH and UMCCA. We are maintaining our NEUTRAL call
on the plantation sector but prefer young planters such as TSH and UMCCA. The
average age profile for TSH and UMCCA are at 6.2 and 7.6 years old
respectively, which are the youngest among pure planters under our coverage.
Due to their high percentage of plantation lands coming into maturity, we
expect the double-digit FFB growth rate for TSH and UMCCA to be sustained.
Source: Kenanga
No comments:
Post a Comment