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Bimb Research Highlights

Author: kltrader   |   Latest post: Wed, 21 Oct 2020, 4:21 PM

 

MPOB Monthly Statistics June 2019 - Inventory Eased Further to 2.42m tonnes

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  • Inventory declined 0.97% mom to 2.424m tonnes
  • CPO production fell 9.17% mom to 1.518m tonnes
  • Palm oil exports dropped 19.35% mom to 1.383m tonnes.
  • Maintain Underweight on the sector with target average CPO price for 2019 of RM2,050/MT.

June’s closing stocks eased further to 2.42m tonnes

Inventory as at June 2019 reduced slightly by 0.97% mom to 2.42m tonnes as production fell 9.2% mom to 1.52m tonnes; although still substantially higher than June18’s level of 2.19m tonnes. Import of PO was 63.9% higher mom to 101.3k tonnes. Notably, stocks of CPO decreased by 7.5% mom (+9.8% yoy) to 1.35m tonnes during the period – with all states recorded lower. However, PPO (processed PO), increased 8.7% mom to 1.07m tonnes (+10.1% yoy) from 984k tonnes recorded in May19. We project stock level shall continue to be above its psychological level of 2.0m tonnes i.e. 2.4m – 2.6m for the remaining month to close at 2.42 at the end of 2019.

Export slumped 19.4% mom to 1.38m tonnes

Palm oil export volume dropped 19.35% to 1.383m tonnes vs 1.714m tonnes recorded in May 2019 (+22.4% yoy) as China, India, EU and USA registered lower demand. USA recorded the biggest decline of 56.96% followed by India (-19.86%), China (-15.35%), and EU by -10.9% (Table 3: mom and yoy change).

Production dropped 9.17% mom to 1.52m tonnes.

Malaysia’s CPO production decreased 9.17% mom to 1.518m tonnes in June 2019; the lowest monthly production so far in 2019 (Feb19: 1.54m tonnes). Nonetheless, production is still higher by 13.9% yoy vs 1.33m tonnes recorded in June 2018. Mostly all states in Malaysia recorded a lower mom production except for Terengganu that registered growth of +5.3% to 46.97k tonnes. We believe production would start to normalise in July before rising again in 4Q when the sector enters its seasonally higher production peak month.

Average CPO price forecast maintained at RM2,050/MT for 2019.

The 3-month CPO futures price in the month of June lost its momentum to trade lower and closed the month at RM1,951/MT (lowest for the month). On the other hand, CPO price for local delivery, i.e. MPOB’s CPO price surged 1.1% mom to an average of RM1,968/MT against RM1,947/MT recorded in the previous month. Nonetheless, the MPOB average CPO price (Jan-June period) was down by RM427/MT or -17.6% to RM1,996/MT against RM2,423/MT recorded in the same period last year.

We maintain our prediction for CPO price to trade within a range of RM1,900/MT – RM2,200/MT for 2H2019, as we expect the upside is limited due to low SBO prices, strengthening of ringgit, volatile crude oil prices, unsettle trade-dispute, and weaker demand as we estimate demand may continue to moderate.

Maintain Underweight

Given lack of rerating catalyst, we retain our Underweight recommendation. Currently, most of the companies under our coverage are fully valued and are at risk of further earnings disappointment on weak palm product prices outlook. We have Hold on KLK (TP: RM23.34), BKawan (TP: RM16.33), HAPL (TP: RM1.68), TSH (TP: RM1.00), GENP (TP: RM10.33), SOP (TP: RM2.46), FGV (TP: RM1.13), IJMP (TP: RM1.47), Sarawak Plant (TP: RM1.65) and SDPL (TP: RM5.03); whilst a Buy on IOI (TP: RM5.00) and a non-rated for TH Plant.

Source: BIMB Securities Research - 10 Jul 2019

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