Analysts at RHB Bank Singapore and Maybank Securities are keeping “neutral” on the plantation sector on the back of increasing inventory.
Maybank analyst Ong Chee Ting notes that the Malaysian Palm Oil Board’s June stockpile continued its third consecutive month of uptrend rising to 1.83 metric tonnes, 4% higher m-o-m, in line with consensus estimates.
This was mainly due to a double digit decline in exports by 13% m-o-m which was mitigated by a smaller decline in June’s production. “One trader attributed the weak exports to shipping problems, such as space constraints in containers,” he adds.
June’s consumption was higher m-o-m at 0.35 metric tonnes, while imports continued its m-o-m decline of 43% as Indonesia’s domestic palm oil feedstock prices remain unattractive.
Meanwhile, RHB’s Hoe Lee Leng points out that incoming Indonesian president Prabowo Subianto has signalled his intention to boost palm oil output by potentially using industrial forest land for oil palm cultivation, aside from keeping the biodiesel mandate by raising it from the current 35% to 40% by 2025 and 50% by 2029.
“We are unsure of how the conversion of industrial forest land can be done given the environmental restrictions in place and would therefore not be too optimistic on this plan at the moment.
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“We do believe, however, that output needs to increase further before biodiesel mandates can rise to as high as 50% by 2029 given the tight supply, and the food versus fuel debate. The increase to B40 in 2025 will soak up another 1.5 metric tonnes to 2 metric tonnes of palm oil from the market,” says Hoe.
She also highlights that La Nina is still a possibility, expected to develop in September to November and persist through 1QFY2025 with an 85% probability.
With La Nina impact, DBS Group Research analyst William Simadiputra forecast a higher trend for Malaysia crude palm oil (CPO) price benchmark, which bodes well for its FY2024 forecast of US$920 per metric tonne.
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He also believes that there is room for earnings improvement in 2QFY2024, mainly for exports such as First Resources EB5 and Wilmar International F34 on the weakening of the Indonesian rupiah trend. Meanwhile, Indonesian upstream planters such as Bumitama Agri P8Z will enjoy higher profitability on better production volumes and decent domestic CPO selling price trend in 1HFY2024.
DBS is keeping “buy” on Bumitama, First Resources and Wilmar. Maybank is keeping “buy” on Bumitama, while RHB is keeping “neutral” on all Singapore-listed planters under coverage.
