Plantation. Inventory rises as production exceeds exports. NEUTRAL (maintain) Sector Update

Transcription

1 12 September 217 Inventory rises as production exceeds exports CPO production in August decreased slightly mom on the back of lower production from the Peninsular and Sabah regions. Meanwhile, exports of palm oil increased for the second consecutive month by 6.4% mom as key buyers like Iran, India, Philippines and China bought more palm oil products. Inventory of palm oil in August increased to 1.94m MT, the highest level since March 216. Overall, we maintain our NEUTRAL plantation sector rating with GENP as our top pick. August production slipped by.9% mom, but Ytd up 14% yoy Malaysian CPO production decreased slightly by.9% mom to 1.81m MT in August after a strong rebound in July. CPO production in the Peninsular and Sabah fell by.7% and 5.3% mom, respectively, to.98m MT and.44m MT, but this was partially mitigated by a 3.8% mom increase in Sarawak s production to.39m MT. Peninsular Malaysia and Sarawak recorded higher FFB yield of 1.74 MT/ha (+3.6% mom) and 1.55 MT/ha (+5.4% mom), while Sabah recorded lower FFB yield of 1.5 MT/ha (-7.4% mom). For 8M17, total CPO production rose by 13.6% yoy to 12.35m MT. The recovery was largely anticipated after the El Nino phenomenon badly affected production in 216. Palm oil inventory at 1.94m MT, highest level since March 216 Palm oil exports increased for a second consecutive month by 6.4% mom in August to 1.49m MT. Among the key buyers, exports to Iran, India, Philippines and China rose by 33.2%, 13.5%, 7.3% and 2.9% mom, respectively, while exports to the EU, Vietnam, USA and Pakistan fell by 17.2%, 15.9%, 13.3% and 11.9% mom, respectively. For 8M17, total exports has increased by 2.% yoy to 1.71m MT. Palm oil inventory in August rose by 8.8% mom to 1.94m MT, the highest level over the past 18 months (Aug16 inventory: 1.46m MT). The current stock level is equivalent to 1.3 months of export, which is sufficient and manageable, in our view. Soybean oil premium over CPO widens further in August For August, the average MPOB locally-delivered CPO prices was higher at RM2,633/MT, up marginally by.1% mom from RM2629.5/MT in July (August16: RM2,62/MT; 8M17 CPO ASP: RM2,859/MT). Due to the steeper increase in soybean-oil prices compared to increase in CPO prices for August, the soybean oil premium over CPO widened to about US$181/MT, up US$9/MT mom. Sector Update Plantation NEUTRAL (maintain) Absolute Performance (%) 1M 3M 12M FGV +11.8% +3% -25% GENP +1.3% -4.1% -.9% HAPL +.4% +1.5% +9.6% IJMP +1% -1.9% -7.3% IOI +2% -.2% +.7% KLK % -.2% +4.1% SIME -2.9% -4.7% +16.3% JTIASA -6.4% -13.4% -17.6% TA ANN +3.1% +5.2% +3.7% WTK -8.3% -14.4% -28% CPO Price vs KL Plantation Index (RM/MT) 4, 3,5 3, 2,5 2, 1,5 CPO price (LHS) Aug-6 Jun-8 Apr-1 Feb-12 Dec-13 Oct-15 Aug-17 Source: Affin Hwang, Bloomberg KL Plant Index (RHS) 1, 9, 8, 7, 6, 5, 4, 3, 2, Nadia Aquidah (63) nadia.subhan@affinhwang.com Laila Razip (63) noramirah.razip@affinhwang.com Peer comparison Stock Stock Rating Sh Pr # TP Mkt Cap Year Core PE (x) EPS grow th (%) EV/EBITDA P/BV ROE (%) DY (%) code (RM) (RM) (RMm) end CY17E CY18E CY17E CY18E FY17E (x) FY17E (x) CY17E FY17E Sime Darby SIME.MK HOLD ,722 June (2.9) IOI Corp IOI.MK SELL ,4 June KL Kepong KLK.MK HOLD ,41 Sept Felda Global FGV.MK HOLD ,238 Dec Genting Plant GENP.MK BUY ,219 Dec IJM Plant IJMP.MK HOLD ,686 Mar Hap Seng Plant HAPL.MK HOLD ,14 Dec Jaya Tiasa JT.MK HOLD June (6.1) Ta Ann TAH.MK BUY ,623 Dec (1.) WTK WTKH.MK SELL Dec n.m Wilmar * WIL.SP Not Rated 3.22 n.a 2,353 Dec Astra Agro ** AALI.IJ Not Rated 15,1 n.a 29,63 Dec (2.4) Mkt Cap weighted average * S$ ** IDR # Share prices as at 11 Sept 217 Source: Company, Affin Hwang forecasts, Bloomberg Page 1 of 5

2 12 September 217 ENSO neutral favoured for remaining of 217 Based on the latest US NOAA climate advisory report, overall, the ocean and the atmosphere system remained consistent with ENSO-neutral. Most models favour ENSO-neutral through the remainder of this year. The chances of El Nino or La Nina making an appearance remains, but it is low. Maintain NEUTRAL on our sector rating and stock calls No changes have been made to our plantation companies earnings forecasts. Across our coverage universe, we have BUY ratings on Genting Plantation (GENP MK, RM1.66) and Ta Ann (TAH MK, RM3.65); HOLD ratings on KL Kepong (KLK MK, RM24.74), Felda Global (FGV MK, RM1.71), Sime Darby (SIME MK, RM9.14), IJM Plantation (IJMP MK, RM3.5), Hap Seng Plantation (HAPL MK, RM2.63) and Jaya Tiasa (JT MK, RM1.3); while IOI Corp (IOI MK, RM4.53) and WTK (WTKH MK, RM.77) carry SELL ratings (please refer to our peer comparison table). For plantation-sector exposure, GENP is our top sector pick. We continue to like GENP as we expect rising matured plantation area and higher FFB and CPO production to drive growth. Sector wise, we maintain our NEUTRAL rating for the plantation sector. Key risks Key downside risks to our NEUTRAL rating on the plantation sector and stock calls include: (i) weaker-than-expected demand and higher-than expected production lowering prices of vegetable oils; (ii) declines in CPO production that are not offset by higher CPO selling prices; (iii) delays in the implementation of biodiesel mandates in Indonesia and Malaysia; and (iv) unfavourable policies and taxes. Meanwhile, key upside risks include a strong rebound in the global economy as well as demand and prices of vegetable oils. Page 2 of 5

3 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul September 217 Focus Charts Fig 1: Key palm oil statistics August 217 Jul17 Aug17 mom change Aug16 Aug17 yoy change YTD (Jan - Aug) (' MT) (' MT) (' MT) (' M T) % (' MT) (' MT) (' M T) % % chg Production 1, ,81.6 (16.5) (.9) 1,71.8 1, , , Export 1, , , ,487.8 (335.8) (18.4) 1,59.3 1, Stock 1, , , , , , Avg Price (RM/MT) 2, , ,62. 2, , , Fig 2: Exports to key destinations August 217 Destination Change (%) (MT) Jun Jul Aug Jan-Aug Jun Jul Aug Jan-Aug Aug17 Jan-Aug17 mom yoy yoy China PR 1,659 21, ,723 1,12,657 68, , ,251 1,76, (35.) (4.) India 169, ,858 44,477 2,58, , , ,286 1,461, (58.4) (29.) Iran 32,593 51,683 58,43 242,576 62,1 14,182 61,15 357, Philippines 4,26 65,528 5, ,442 67,724 57,176 61, , Vietnam 47,792 52,993 48, ,329 58,518 59,478 5,27 397,158 (15.9) Pakistan 88,67 6,649 84,15 513,75 123,569 77,885 68,65 584,423 (11.9) (18.3) 13.9 United States 3,282 76,786 52, ,287 48,23 5,547 43, ,846 (13.3) (16.7) (2.5) European Union 15, , ,815 1,316, , , ,673 1,316,61 (17.2) (25.1) (.) Fig 3: Monthly CPO production (' MT) ,1 1,8 1,5 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fig 4: Monthly palm oil exports (' MT) , 1,8 1,6 1,4 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fig 5: Monthly palm oil closing stocks (' MT) 3, ,5 2, 1,5 5 Fig 6: Monthly FFB yield by region (MT/ha) Peninsular Sabah Sarawak Malaysia Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page 3 of 5

4 12 September 217 Fig 7: MPOB CPO spot price versus USD/MYR exchange rate Fig 8: Observed SST anomalies in Niño-3.4 regions (RM/MT) 4, CPO price (LHS) MYR/US$ (RHS) (MYR/US$) 5. (ºC) El Niño 3,5 3, 2,5 2, 1, La Niña 2.5 Aug-6 Jun-8 Apr-1 Feb-12 Dec-13 Oct-15 Aug-17 DJF 52 MJJ 57 OND 62 MAM 68 ASO 73 JFM 79 JJA 84 NDJ 89 AMJ 95 SON FMA 6 JAS 11 DJF 17, Bloomberg Source: US NOAA Fig 9: Soybean oil price, CPO price & soybean oil premium Fig 1: CPO premium over Brent crude (US$/MT) CPO price SBO price SBO premium 1,6 1,4 1, (US$/MT) 1,45 1,25 1, CPO NWE Price Brent Crude Price CPO Premium Aug-6 Jun-8 Apr-1 Feb-12 Dec-13 Oct-15 Aug-17 Source: Oil World, Bloomberg, Affin Hwang estimates Fig 11: Stock/usage ratio of 7 Oilseeds 25% 2% 15% 1% 5% % 17.5% 14.6% 2.3% 18.7% 15.6% 16.2% 14.7% 19.5% 18.3% 21.% 2.2% 7/8 8/9 9/1 1/11 11/12 12/13 13/14 14/15 15/16 16/17E17/18E Source: Oil World (15) Aug-6 Jun-8 Apr-1 Feb-12 Dec-13 Oct-15 Aug-17 Source: Oil World, Bloomberg, Affin Hwang estimates Fig 12: Stock/usage ratio of 8 major oils 18% 16% 14% 12% 1% 8% 6% 4% 2% % 14.7% 15.5% 16.% 16.6% 13.4% 13.3% 13.5% 13.6% 12.8% 12.8% 12.1% 7/8 8/9 9/1 1/11 11/12 12/13 13/14 14/15 15/16 16/17E17/18E Source: Oil World Page 4 of 5

5 12 September 217 Equity Rating Structure and Definitions BUY Total return is expected to exceed +1% over a 12-month period HOLD Total return is expected to be between -5% and +1% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) ( the Company ) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) A Participating Organisation of Bursa Malaysia Securities Berhad 22nd Floor, Menara Boustead, 69, Jalan Raja Chulan, 52 Kuala Lumpur, Malaysia. T : F : research@affinhwang.com Page 5 of 5