June 2014 inventory declined 10% MoM on lower production, higher exports and domestic Ramadhan demand.
We expect CPO price to trade between MYR2,400-2,600/t till Aug 2014, before pushing higher in 4Q14.
Maintain 12M NEUTRAL view. Key upside risk to our view is the return of a strong El Niño and further tension in Iraq.
We expect July 2014 production to be stronger MoM as output starts to pick up in 2H14 and peak sometime in Sept / Oct 2014.
Our CPO ASP forecast of MYR2,600/t for 2014 and 2015 (2013: MYR2,377/t) is unchanged. We maintain our Neutral view on the sector with selective BUYs in Bumitama Agri, First Resources, Wilmar, Astra Agro Lestari, Ta Ann, Sarawak Oil Palms and Sime Darby. We advocate SELLs on IOI Corporation and TH Plantations for their steep valuations.
Weather experts have ruled out the return of a strong El Nino in 2H14 but a weak El Nino is still possible and can only be confirmed in Aug or Sept 2014. A weak El Nino may only push up our CPO ASP forecast by MYR100-200/t p.a.. For every MYR100/t p.a. change in our CPO price forecasts, the earnings forecasts for stocks under our coverage change by 5%-12% (on a full year impact). Most sensitive to CPO price changes are TH Plantations, Ta Ann, Felda Global and Sarawak Oil Palms – see Fig 6.
Source: Maybank Research - 11 Jul 2014
We expect CPO price to trade between MYR2,400-2,600/t till Aug 2014, before pushing higher in 4Q14.
Maintain 12M NEUTRAL view. Key upside risk to our view is the return of a strong El Niño and further tension in Iraq.
What’s New
The Malaysian Palm Oil Board’s June 2014 inventory was below market expectations at 1.66m MT (-10% MoM, +1% YoY). The lower MoM inventory was on the back of lower June production (1.57m MT, -5% MoM, +11% YoY), higher exports (1.48m MT, +5% MoM, +5% YoY) and stronger domestic demand ahead of the Ramadhan festivity (0.28m MT, +26% MoM, +38% YoY) which is the usual trend a month before the Hari Raya celebration.We expect July 2014 production to be stronger MoM as output starts to pick up in 2H14 and peak sometime in Sept / Oct 2014.
What’s Our View
In the short term, we believe CPO price will continue to trade in the range of MYR2,400/t-2,600/t till Aug 2014 due to concerns over ample global oilseeds supply as the South American harvests hit the global market while the USDA Acreage report issued on 30 June 2014 reported higher-than-expected record soybean planting. Nonetheless, we expect CPO price to trend higher in 4Q14, ranging in the MYR2,600-2,800/t levels.Our CPO ASP forecast of MYR2,600/t for 2014 and 2015 (2013: MYR2,377/t) is unchanged. We maintain our Neutral view on the sector with selective BUYs in Bumitama Agri, First Resources, Wilmar, Astra Agro Lestari, Ta Ann, Sarawak Oil Palms and Sime Darby. We advocate SELLs on IOI Corporation and TH Plantations for their steep valuations.
Weather experts have ruled out the return of a strong El Nino in 2H14 but a weak El Nino is still possible and can only be confirmed in Aug or Sept 2014. A weak El Nino may only push up our CPO ASP forecast by MYR100-200/t p.a.. For every MYR100/t p.a. change in our CPO price forecasts, the earnings forecasts for stocks under our coverage change by 5%-12% (on a full year impact). Most sensitive to CPO price changes are TH Plantations, Ta Ann, Felda Global and Sarawak Oil Palms – see Fig 6.
Source: Maybank Research - 11 Jul 2014
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