Plantation
Maintain neutral: The Malaysian Palm Oil Board (MPOB) is due to release its October statistics today. We are expecting crude palm oil (CPO) output in October to be slightly lower than September’s 1.87 million tonnes.
We estimate that CPO output in October fell by 4.1% month-on-month (m-o-m) to 1.79 million tonnes, mainly due to wet weather conditions in northern Peninsular Malaysia and Sabah and Sarawak.
However, cumulative CPO output is expected to be 9.6% year-on-year (y-o-y) higher to 15.7 million tonnes and full-year output may touch 18 million tonnes for the first time.
Total exports in October are likely to have increased as lower CPO prices spurred buying interest. We estimate 1.69 million tonnes of total exports in October, an increase of 9.5% m-o-m and 15.7% y-o-y.
Independent cargo surveyor Societe Generale de Surveillance (SGS) estimates that total exports in October increased by 11.9% m-o-m to 1.68 million tonnes, mainly due to higher exports to EU countries and Pakistan. SGS estimates that on a sequential month basis, total exports in October to EU countries increased 27% to 317,000 tonnes while exports to Pakistan almost tripled to 201,750 tonnes.
Despite the higher expected export figure for October, we are maintaining our “neutral” recommendation on the sector given that: (i) Export growth is not keeping pace with CPO production growth. This will cause the inventory level to remain at its current high level of two million tonnes; and (ii) Narrowing discount of CPO price to soyabean price. Currently, CPO is trading at a 14.5% discount to the soyabean price, which is 0.8 of a percentage point lower than its five-year average discount of 15.3%. The narrowing of the discount implies the CPO price is probably running ahead of its fundamentals. We do not discount the possibility it will retrace in the weeks ahead.
We are keeping our average CPO price forecast of RM3,200 per tonne for 2011 and RM2,700 per tonne for 2012 and maintaining our “buy” calls for Sime Darby Bhd (target price: RM9.05), TSH Resources Bhd (TP: RM3.54) and TH Plantations Bhd (TP RM2.26). — MIDF Research, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
Maintain neutral: The Malaysian Palm Oil Board (MPOB) is due to release its October statistics today. We are expecting crude palm oil (CPO) output in October to be slightly lower than September’s 1.87 million tonnes.
We estimate that CPO output in October fell by 4.1% month-on-month (m-o-m) to 1.79 million tonnes, mainly due to wet weather conditions in northern Peninsular Malaysia and Sabah and Sarawak.
However, cumulative CPO output is expected to be 9.6% year-on-year (y-o-y) higher to 15.7 million tonnes and full-year output may touch 18 million tonnes for the first time.
Total exports in October are likely to have increased as lower CPO prices spurred buying interest. We estimate 1.69 million tonnes of total exports in October, an increase of 9.5% m-o-m and 15.7% y-o-y.
Independent cargo surveyor Societe Generale de Surveillance (SGS) estimates that total exports in October increased by 11.9% m-o-m to 1.68 million tonnes, mainly due to higher exports to EU countries and Pakistan. SGS estimates that on a sequential month basis, total exports in October to EU countries increased 27% to 317,000 tonnes while exports to Pakistan almost tripled to 201,750 tonnes.
Despite the higher expected export figure for October, we are maintaining our “neutral” recommendation on the sector given that: (i) Export growth is not keeping pace with CPO production growth. This will cause the inventory level to remain at its current high level of two million tonnes; and (ii) Narrowing discount of CPO price to soyabean price. Currently, CPO is trading at a 14.5% discount to the soyabean price, which is 0.8 of a percentage point lower than its five-year average discount of 15.3%. The narrowing of the discount implies the CPO price is probably running ahead of its fundamentals. We do not discount the possibility it will retrace in the weeks ahead.
We are keeping our average CPO price forecast of RM3,200 per tonne for 2011 and RM2,700 per tonne for 2012 and maintaining our “buy” calls for Sime Darby Bhd (target price: RM9.05), TSH Resources Bhd (TP: RM3.54) and TH Plantations Bhd (TP RM2.26). — MIDF Research, Nov 9
This article appeared in The Edge Financial Daily, November 10, 2011.
