Regional Plantation Companies: Room for bounce back
- Indonesia CPO price recovered to Rp10,000/kg level from July sell-off
- Malaysia inventory climbed to 1.77m MT (+7% m-o-m) on seasonal stronger production trend
- Price discount to soybean oil price reflected current excess CPO volume from Indonesia
- Wilmar as our top BUY; we also like FR, BAL, and LSIP for CPO price rebound play
Indonesia domestic CPO price stabilised.
Indonesia decided to collect no levies and taxes until the end of August, which helped Indonesia’s domestic CPO price recover and sustain in the Rp10,000/kg-Rp11,000/kg territory, in line with our average FY22 Indo-CPO price forecast of US$850 per MT. Potential price reversal from the current level is minimal as the recent low price hurt fruit harvest from small farmers. Meanwhile, potential of a further upside will likely be capped by Indonesia’s cooking oil price target of Rp14,000/kg, which indirectly affected domestic CPO pricing.
Malaysia inventory climbed to 1.77m MT (+19% y-o-y, +8% m-o-m).
Seasonal high production of 1.57m MT (+3% y-o-y, +2% m-o-m) drove stockpile position, despite an 11% m-o-m exports volume expansion to 1.3m MT (-6% y-o-y). The current Malaysia stockpile level is at our upper range forecast of 1.7m MT in 2022.
2Q22 earnings season.
Wilmar reported strong 2Q22 earnings while AALI sales volume was affected by Indonesia export ban. Bumitama (BAL) and First Resources (FR) will report earnings 12 and 15 August respectively. Both 1Q22 earnings already accounted for 46% and 38% of our FY22 earnings forecast, which was sufficient to offset any lower earnings trend for the rest of this year.
Stock price performance reflected bearish edible oils scenario.
We think investors are too bearish on plantation stocks. We estimate that the current share price reflected CPO selling price around US$600-650 per MT level, below our Indonesia domestic CPO price forecast of US$850 per MT in FY22 and FY23. This reflected on their single digit PE multiple that below five years average PE multiple of 11x-14x. We maintain our BUY call for WIL, FR, BAL and LSIP.
