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Sustained CPO price momentum

• Malaysia’s CPO stockpile dropped 7% m-o-m as exports rebounded in September 2021
• Meanwhile, output was stagnant m-o-m at 1.7m MT
• CPO price can stay at current levels until next month
• LSIP and BAL to catch up with peers on the back of strong CPO price momentum

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Stockpile dropped 7% m-o-m to 1.7m MT. Malaysia’s CPO stockpile dropped by 7% m-o-m to 1.75m MT (+1% y-oy). Its September stockpile level was below our forecast, on the back of an export recovery as output stagnated m-o-m at 1.7m MT (-9% y-o-y). With the latest inventory contraction and buoyant soybean oil prices, we expect CPO prices to stay at current levels until next month.

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Demand recovers across the board. Exports climbed 37.4% m-o-m to 1.6m MT (-0.9% y-o-y) on strong exports to the major destination countries. Exports to India/EU/China surged 23%/26%/70% m-o-m to 373.3k MT/135.8K MT/234.3K MT respectively. Restocking amid rising prices is unusual but the buying, in our view, is in anticipation of strong prices persisting until the end of this year. Meanwhile, Indonesia’s biodiesel production recovered 20% m-o-m to 742k KL in August on the back of the easing pf social-distancing measures.

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Plantation universe seeing positive momentum. We see ample room for CPO stocks to catch up with rising CPO prices, especially for LSIP and BAL – in the wake of Astra Agro (AALI) and First Resources’ (FR) strong performance last month. Meanwhile, Bumitama (BAL) and Lonsum (LSIP) are likely to post strong earnings in 3Q21 amid Indonesia’s strong domestic CPO prices. We also expect Wilmar’s (WIL) share price to see improvements as its valuations are currently around that of its upstream CPO peers.