Plantations sector
Maintain underweight: Malaysia has denied reports that it has delayed issuing quotas for tax-free crude palm oil (CPO) because it is drafting a policy to counter competition from Indonesia. This will provide short-term relief to the market.
However, we believe the government is still exploring options to help local downstream players. This may be negative for the earnings of pure upstream producers. In view of this risk and the rich valuations of Malaysian planters relative to regional peers, we maintain our “underweight” call.
According to Reuters sources, Malaysia has delayed issuing quotas for tax-free export of CPO in 2012 as it is drafting a policy to counter competition from Indonesia, which slashed export taxes for refined oil.
An official involved in the licensing process said the government is formulating a framework that would be acceptable to all stakeholders in the Malaysian palm oil industry. However, Tan Sri Bernard Dompok, Minister for Plantation Industries and Commodities, has denied this news, attributing the delay to the festive holidays.
The denial of a policy shift in tax-free quotas for CPO is neutral for the sector. But we understand from the market that the government has been exploring options to protect the downstream industry from rising competition. One of the options being explored is a reduction of Malaysia’s CPO export tax to parity with Indonesia’s and scrapping or reducing the CPO tax-free quota system.
This would be negative for the upstream palm oil players and palm oil producers who currently enjoy tax-free CPO quotas. It would be positive for the local refiners as it would allow them to compete on a level playing field with Indonesian players.
A shift in policy to help the downstream players in Malaysia may be negative for the upstream players unless the government forks out tax rebates. We maintain our “underweight” call on Malaysian planters in view of their pricey valuations and potential earnings risks. — CIMB Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
Maintain underweight: Malaysia has denied reports that it has delayed issuing quotas for tax-free crude palm oil (CPO) because it is drafting a policy to counter competition from Indonesia. This will provide short-term relief to the market.
However, we believe the government is still exploring options to help local downstream players. This may be negative for the earnings of pure upstream producers. In view of this risk and the rich valuations of Malaysian planters relative to regional peers, we maintain our “underweight” call.
According to Reuters sources, Malaysia has delayed issuing quotas for tax-free export of CPO in 2012 as it is drafting a policy to counter competition from Indonesia, which slashed export taxes for refined oil.
An official involved in the licensing process said the government is formulating a framework that would be acceptable to all stakeholders in the Malaysian palm oil industry. However, Tan Sri Bernard Dompok, Minister for Plantation Industries and Commodities, has denied this news, attributing the delay to the festive holidays.
The denial of a policy shift in tax-free quotas for CPO is neutral for the sector. But we understand from the market that the government has been exploring options to protect the downstream industry from rising competition. One of the options being explored is a reduction of Malaysia’s CPO export tax to parity with Indonesia’s and scrapping or reducing the CPO tax-free quota system.
This would be negative for the upstream palm oil players and palm oil producers who currently enjoy tax-free CPO quotas. It would be positive for the local refiners as it would allow them to compete on a level playing field with Indonesian players.
A shift in policy to help the downstream players in Malaysia may be negative for the upstream players unless the government forks out tax rebates. We maintain our “underweight” call on Malaysian planters in view of their pricey valuations and potential earnings risks. — CIMB Research, Jan 31
This article appeared in The Edge Financial Daily, February 2, 2012.
