Stockpile Hits Seasonal Peak

Transcription

1 Sector Update, 13 January 214 Plantation Stockpile Hits Seasonal Peak Overweight Macro Risks Growth Value Average crude palm oil price, MYR/tonne 3,5 3, 2, 1,5 1, CY6 CY7 CY8 CY9 CY1 CY11 CY12 CY13 Average CPO price, MYR/t Source: Malaysian Palm Oil Board (MPOB) Average palm kernel price, MYR/tonne 2, 1,5 1, 5 Source: MPOB CY6 CY7 CY8 CY9 CY1 CY11 CY12 CY13 Average PK price, MYR/t Average refined palm oil price, MYR/tonne 4, 3,5 3, 2, 1,5 CY6 CY7 CY8 CY9 CY1 CY11 CY12 CY13 Source: Bloomberg Average RBDPO price, MYR/t Alvin Tai, CFA alvin.tai@rhbgroup.com Hoe Lee Leng hoe.lee.leng@rhbgroup.com Malaysia s palm oil stockpile rose marginally to 1.985m tonnes in Dec 213 likely to be the seasonal peak. In the months ahead, inventory will ease, providing a lift for palm oil prices. A stronger price catalyst, however, is in the form of Pertamina s upcoming second biodiesel tender. Maintain OVERWEIGHT, with First Resources, Bumitama and AALI as sector Top Picks. Malaysian Top Picks are IOI and SOP. No surprises. Malaysia s palm oil inventory ended at 1.985m tonnes for 213, sharply lower vis-à-vis end-212, as export growth outstripped production growth and local consumption surged during the year.. Prices softened. Palm oil prices have retraced in the past two weeks, as Indonesia s mandatory biodiesel programme encountered hiccups, due to pricing issues. Pertamina only managed to secure 18% of the 3m tonnes of biodiesel supply required. The 18% secured is sufficient for two months consumption. There is an upcoming second tender, which is said to be on 21 Jan. Production weakness more apparent in 2Q. We believe palm oil prices will strengthen progressively throughout 214 due to lacklustre production in Indonesia, as a result of rainfall deficit over the past two years. We believe more price strength will be seen in the 2Q, as production weakness becomes more apparent. Weak 1Q production is likely to be perceived as seasonal in nature. India s import tax. India raised its import duty for refined edible oil from 7.5% to 1.% but tax for crude edible oil is unchanged, the impact of which is neutral it will only cause a switch from refined to crude products. Buying opportunity. We view the price pullback as temporary and provides a buying opportunity. The main stumbling block for palm oil prices to charge higher at this point in time is the relatively narrow discount to soybean oil at USD65 per tonne. On the flipside, this also means there is a USD65 upside for palm oil price before it comes to parity against soybean oil price. As we have seen in 29 and 21, poor palm oil production led to parity price against soyoil. P/E (x) P/B (x) Yield (%) Company Name Price Target Dec-14F Dec-14F Dec-14F Rating Astra Agro Lestari IDR21,35 IDR28, BUY Bumitama Agri Ltd SGD.95 SGD BUY CB Industrial Product Holding MYR3.23 MYR BUY Felda Global Ventures Holdings MYR4.5 MYR BUY First Resources SGD2.7 SGD BUY Genting Plantations MYR1.74 MYR NEUTRAL Golden Agri SGD.53 SGD BUY IJM Plantation MYR3.42 MYR SELL IOI Corporation MYR4.24 MYR BUY JA Wattie TBK PT IDR37 IDR BUY Kuala Lumpur Kepong MYR23.9 MYR NEUTRAL Kulim Malaysia MYR3.38 MYR BUY London Sumatra Indonesia Tbk PT IDR1,535 IDR2, NEUTRAL Sampoerna Agro IDR1,88 IDR2, BUY Saraw ak Oil Palms MYR6.95 MYR BUY TDM MYR.96 MYR NEUTRAL TH Plantations MYR1.85 MYR SELL Source: Company data, RHB estimates See important disclosures at the end of this report Powered by EFA TM Platform 1

2 Plantation 13 January 214 How 213 played out Production trend Malaysia s 213 palm oil production hit its highest level ever at m tonnes, an increase of 429,8 tonnes, or 2.3%, from 212. West Malaysia produced 1.328m tonnes (+.1% y-o-y), making up 53.8% of total production. Sabah production rose 4.2% to 5.776m tonnes, or 3.1% of the country s production, while Sarawak s output rose by 6.4% to 3.11m tonnes, or 16.2% of national production. Within West Malaysia, the three biggest producing states, ie Johor, Pahang and Perak, make up 76% of Peninsula Malaysia s production. Surprisingly, only three states, ie Johor, Pahang and Kelantan, showed production increases, while the other seven experienced production declines of between %. Production yield Malaysia s oil yield was marginally better at 3.85 tonnes per ha compared to 3.84 tonnes in 212. Sabah remained as the highest yielding state at 4.4 tonnes (4.29 tonnes in 212). Export trend 213 total palm oil export rose by 3.2% to m tonnes, also a record high but only marginally surpassing 211 s m tonnes level. China remained the largest export destination with total shipment of 3.7m tonnes, or 2.4% of total exports, followed by Europe (12.9% of total), India (12.8% of total), Pakistan (7.9% of total) and the US (5.6% of total). Encouragingly, shipments to China rose by 5.6%, Europe was up by 4.9% and Pakistan by 6.3%. However, shipment to India dipped by 11.9% on loss of market share to Indonesia and the US slipped by 1.7%. Local consumption Malaysia s local consumption rose by 12.1% y-o-y to 2.291m tonnes, driven by biodiesel consumption. However, local consumption is still significantly off peak of the 2.591m tonnes achieved in 28. Inventory End-213 s 1.985m palm oil inventory was sharply lower than what it was at end- 212, thanks to trade normalisation following the change in Malaysia s export duty structure for CPO and poor production growth in Indonesia. Compared to the trough level of 1.648m tonnes in June 213, it was up by 2.5%. We view inventory level as being comfortable and should not cause oversupply concerns. Downstream performance The abovementioned trade normalisation has helped the Malaysian downstream business remain competitive against its Indonesian counterparts. Malaysia s refinery utilisation rate improved to 69.7% in 213 compared to 63.% in 212. Oleochemical plant utilisation also improved to 77.4% compared to 75.9% a year earlier. Average price Palm oil prices averaged MYR2,375 per tonne, based on the simple average of West Malaysia MPOB price, or about 1% lower than our MYR2,4 per tonne expectation. On a weighted average basis, based on 43.7% production in the 1H and 56.3% in the 2H, average palm oil price was slightly higher at MYR2,38. Price spread Discount to soybean oil widened last year to an average of USD29 per tonne in 213 compared to the USD28 discount in 212. However, in the 4Q alone, average discount was at USD1 per tonne, with the discount reducing to under USD1 in Nov 213 onwards due to the relative ampleness of soybean supply relative to palm oil. Compared to Brent Crude, palm oil traded at an average of USD4.8 discount per barrel in 213, compared to an average premium of USD18.89 per barrel in 212. The discount to Brent Crude encouraged the use of biodiesel, which helped pare down palm oil inventory in 213. See important disclosures at the end of this report 2

3 Plantation 13 January 214 Figure 1: Palm oil's discount to soybean oil is at a narrow USD65 per tonne 1,6 1,4 1,2 1, Source: Bloomberg Premium, USD (RHS) Soyoil, USD (LHS) CPO, USD (LHS) Figure 2: Palm oil is at discount to Brent Crude after the recent decline CPO's premium over crude oil Soyoil's premium over crude oil Source: Bloomberg, RHB estimates Figure 3: Palm oil against energy benchmarks (USD per barrel) Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Source: Bloomberg Gasoil CPO Brent crude Biodiesel, SEA See important disclosures at the end of this report 3

4 Jul-3 Dec-3 May-4 Oct-4 Mar-5 Aug-5 Jan-6 Jun-6 Nov-6 Apr-7 Sep-7 Feb-8 Jul-8 Dec-8 May-9 Oct-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 Dec-1 Jun-2 Dec-2 Jun-3 Dec-3 Jun-4 Dec-4 Jun-5 Dec-5 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Plantation 13 January 214 Figure 4: Palm oil prices vs inventory levels 4,5 4, 3,5 3, 2, 1,5 1, 5 3,,, 2,, 1,5, 1,, 5, Stocks, tonnes (RHS) CPO Price, MYR (LHS) Source: MPOB Figure 5: India's import of palm oil largely in CPO form YTD CY7 YTD CY8 YTD CY9 YTD CY1 YTD CY11 YTD CY12 YTD CY13 CPO Refined PO Total Source: India's Customs Figure 6: Composite fertiliser cost at USD343 per ha Source: RHB estimates, Indexmundi SOA MOP RP Composite cost (FOB) See important disclosures at the end of this report 4

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