Highlights

Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 11 Jun 2021, 10:45 AM

 

Plantation - Rising Inventory to Take A Breather

Author:   |    Publish date:


Review of April figures:

April inventory of 1.55m MT (+7.1% MoM) came within our, but above consensus’ (which overestimated domestic consumption), forecast. Production of 1.52m MT is in line with both our/consensus’ estimates. Export rose 12.6% MoM – we believe this is attributable to China and India’s stockpiling efforts.

Our projection for May:

For May, we forecast: (i) production growth (+4.6% MoM), as East Malaysia continues its growth trajectory, and (ii) exports to rise (+19.6% MoM), ahead of the Islamic festive season and potential stockpiling activities from China and India. Data from cargo surveyors for 1st – 10th May have shown an average increase of 33%. All in, we expect total demand to outstrip total supply leading to lower ending stocks of 1.46m MT (-5.6% MoM).

Our thoughts on the sector:

Moving forward, the prevailing key factors remain: (i) stockpiling activities by India and China, (ii) labour situation approaching peak season, (iii) supply-demand dynamics of soybean market, and (iv) biodiesel mandates fulfilment. Stay NEUTRAL on the plantation sector with an unchanged CY21 CPO price forecast of RM3,000/MT.Markets should be mixed as participants digest the contrasting bearish MPOB inventory data but bullish 1st – 10th May cargo surveyors’ data. We continue to believe that the peak will occur soon. However, valuations of planters under our coverage and the KLPLN index (both at -1.0SD from mean) seem to have somewhat priced in the negatives. Our upstream preferredstock pick to capitalise on the current strong CPO prices and yet able to soften the impact of subsequent price decline due to output growth is HSPLANT (OP; TP: RM2.15).Our integrated pick with defensive overall margin against the CPO price variability is KLK (OP; RM25.40).

April 2021 CPO inventory rose (+7.1%) MoM to c.1.55m metric tons (MT). This is in line with our estimate of 1.53m MT (+5.5% MoM), but above consensus’ estimate of 1.44m (-0.1% MoM). Consensus overestimated domestic consumption which came in at 195k MT (-18.0% MoM) vs. their expected 360k MT (+53.7% MoM). Production of 1.52m MT is more or less in line with both our/consensus estimates of 1.58m/1.55m MT. The 12.6% MoM increase in April exports was mainly driven by stockpiling activities by: (i) China (+52.8% MoM), and (ii) India (+54.0% MoM).

Forecasting May 2021 production to rise (+4.6% MoM) to 1.59m MT. We continue to expect production growth in Sabah and Sarawak to continue in May, while Peninsular Malaysia could take a breather. Premised on these reasons, we forecast 4.6% MoM increase in overall production in May 2021.

Exports to rise (+19.6% MoM) to 1.60m MT in May 2021. Data from cargo surveyors for 1st – 10th May showed an average increase of 33% MoM. We think exports to Muslim countries could taper off after the Islamic holidays in mid-May. Thereafter, exports should be driven by China and India’s oils and fats inventory replenishment activities. We observed a rising pattern in Malaysia’s palm oil exports to both countries when their oils and fats stock levels plummeted to multi-year lows in Apr-May 2020. As of April 2021, India’s inventories have started to climb, while China’s inventories are at multi-year low levels.

May 2021 inventory to decline (-5.6% MoM) to 1.46m MT. All-in, we expect total demand of 1.84m MT to outstrip total supply of 1.75m MT, leading to lower ending stocks of 1.46m MT in May. The key factors to continue focusing on in the coming months are: (i) stockpiling activities by India and China, (ii) labour situation as we approach peak production season, (iii) supply-demand dynamics of soybean market, and (iv) biodiesel mandates fulfilment.

Stay NEUTRAL on the plantation sector with an unchanged CY21 CPO price forecast of RM3,000/MT. We think the CPO market will be mixed as participants digest the contrasting bearish MPOB inventory data but bullish 1st – 10th May cargo surveyors data. We continue to believe that the peak will occur soon. That said, valuations of planters under our coverage and the KLPLN index (both at -1.0SD from mean) seem to have somewhat priced in the negatives. Our upstream preferred stock pick to capitalise on the current strong CPO price and yet able to soften the impact of subsequent price decline due to output growth is HSPLANT (OP; TP: RM2.15). Our integrated pick with defensive overall margin against the CPO price variability is KLK (OP; RM25.40).

Source: Kenanga Research - 11 May 2021

Share this

  LimitUp likes this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View candlestick stock charts with Technical indicators
MQ Affiliate
Be rewarded by being an MQ Affiliate
 
 

438  423  589 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 DNEX 0.86+0.005 
 AVI 0.17+0.06 
 SERBADK 0.605-0.035 
 ITRONIC 0.21+0.03 
 DNEX-WD 0.325+0.02 
 VIZIONE 0.195-0.01 
 PWF-WA 0.055+0.005 
 SCOMI 0.05-0.005 
 YGL 0.27+0.01 
 SERBADK-WA 0.085-0.015 

FEATURED POSTS

1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS