(ID) Regional Plantation Companies: Sustaining positive price momentum
Strong footing for CPO price. We believe palm oil price held firm due to weaker-than-expected production volume, mainly in Indonesia. Overall, Indonesian CPO companies reported lower production y-o-y in 1Q22. Furthermore, strong crude oil price supported biodiesel consumption on less incentive per liter requirement. Last but not the least, the current soybean oil price premium widened back to US$200 per MT. Meanwhile, Indonesia’s domestic CPO price is currently around Rp13,000/kg, still above our expectation of Rp11,850/kg in 2022 despite being affected by export congestion and additional tax charges.
Indonesia focus is on export resumption to support farmer’s fruits pricing. After assuring its domestic CPO and cooking supplies, Indonesia revoked the export ban, and has now proposed a flush-out scheme to accelerate export and help domestic FFB price recovery. The scheme allows exporters to resume export with US$200 per MT of special export tax on top of US$200 and US$288 per MT export levies and taxes at US$1,500 per MT price level.
Malaysia’s CPO stockpile dropped by 7% m-o-m to 1.52m MT (-3% y-o-y) in May 22. The lower-than-expected stockpile was driven by flat m-o-m production growth to 1.46m MT (-7% y-o-y) Meanwhile, export volume rebounded by 29% m-o-m to 1.36m MT (+7% y-o-y), as importing countries restocked CPO in May.
Strong CPO price positive for this universour coverage. We maintain our FY22 CPO benchmark price forecast of US$1,125 per MT and Indonesia’s domestic CPO price of US$850 per MT. we believe our assumption is sufficient to the weather dynamic regulatory landscape in Indonesia, as well as any stronger-than-expected output in 2H22. We maintain our BUY rating for Wilmar, First Resources, Bumitama, and London Sumatra this universe.