Refer to important disclosures at the end of this report DBS Group Research. Equity 10 Dragged by slower exports Malaysia s -15 palm oil output came in slightly below expectations at 1.653m However, exports slumped 12 m-o-m to 1.499m, pushing stockpile to a new record of 2.908m We expect year-end inventory to settle at 2.529m, as -15 output drops by another 7 m-o-m Top pick: Wilmar Start of low season. -15 palm oil output of 1.653m (- 19 m-o-m) was 5 below forecast, as FFB yields in Johor and Sabah which bore the brunt of dry weather this year dropped by 8 and 9 m-o-m respectively. We expect this trend to continue in the remainder of the year, but maintain our CY15F output of 20.1m. We also expect a steeper-thannormal drop in 1Q16 low season. New record in palm oil inventory. Despite lower output, palm oil stockpile reached a new record of 2.908m (+3 m- o-m) as exports dropped 12 m-o-m to 1.499m indicating rising stockpile in importing countries. The biggest drop was posted by shipments to India (-51k ), followed by the US (-32k ) and Vietnam (-19k ) with limited increases in shipments to the Philippines and South Korea. As at 1--15, Indian edible oil stockpile was at a 4-month high of 2.37m. Palm oil imports also spiked 66 m-o-m to 122k, as we suspect Indonesian palm oil was comparatively priced lower. We expect -15 exports to expand slightly by 3 m-om to 1.546m. End-CY15 palm oil inventory may drop slightly. We expect -15 palm oil output to drop by another 7 m-o-m to 1.534m as low crop season begins. There is a risk output may come in lower, given lagged impact of dry weather since -15. Combined with 60k of imports, we expect end- -15 palm oil stockpile to settle at 2.545m representing stock/usage (exports + domestic consumption) ratio of 12.4 - down from 14.1 at end--15. JCI : 4,521.39 KLCI : 1,659.36 STI : 2,848.46 Analyst Ben Santoso +65 6682 3707 bensantoso@dbs.com Stock coverage Price * Mkt Cap Target Price Performance () LCY US$m LCY 3 mth 12 mth Rating Rp Astra Agro Lestari 17,450 1,968 15,800 0.9 (27.0) FV Eagle High Plantations 123 278 180 (57.3) (70.4) FV London Sumatra 1,360 665 1,260 14.3 (31.1) FV Sampoerna Agro 1,440 195 1,760 4.0 (35.6) BUY RM Felda Global Ventures 1.63 1,393 1.50 33.6 (45.1) FV Genting Plantations 10.02 1,826 9.60 1.4 2.4 HOLD IJM Plantation 3.48 718 3.25 15.6 4.5 HOLD IOI Corporation 4.22 6,226 3.40 8.2 (8.9) FV KL Kepong 22.78 5,682 20.00 8.8 5.0 HOLD Sime Darby 7.53 10,954 7.60 4.4 (18.2) HOLD TSH Resources 1.99 632 1.90 6.4 (8.7) HOLD S$ Bumitama Agri 0.73 906 0.86 0.0 (30.3) HOLD First Resources 1.92 2,167 1.85 27.7 8.8 HOLD Indofood Agri 0.48 472 0.52 (1.0) (32.6) HOLD Golden Agri Resources 0.33 2,991 0.29 8.1 (25.6) NR Wilmar International 2.89 13,001 3.70 9.4 (9.1) BUY Source: DBS Bank, DBS Vickers, AllianceDBS Research *Prices as at end 9 CPO prices under review. While YTD spot palm oil prices have averaged in line with our expectations, CY16F palm oil price of RM2,340 is under review as we reassess palm oil supply/demand (i.e. on impact of CY15 dry weather) and soybean supply/exchange rate forecasts. A prospective drop in palm oil output from both seasonal and weather drivers and potential boost in US biodiesel demand may lend support to palm oil prices. However, downside risks in Indonesian biodiesel demand and potential release of Argentine soybean inventory may continue to cap palm oil price strength over the next six months. We believe a stable price environment and ramp-up in Indonesia s B15/B20 mandate should continue to benefit Wilmar, which remains our top pick in the sector. CPO, soybean, soybean oil price forecasts 14 15F 16F 17F 18F 19F 20F CPO price (RM/ FOB P.Gudang) 2,413 2,200 2,340 2,450 2,610 2,740 2,880 CPO price (US$/ FOB P.Gudang) 738 546 537 561 596 627 659 Soybean price (US$/ FOB Chicago) 457 334 322 318 321 335 350 Soybean oil price (US$/ FOB Chicago) 812 639 655 681 717 748 780 Source: DBS Bank estimates ed-th / sa- BC
Regional Industry Focus Regional peer comparison Est. 15F 15F Adjuste d Adjuste d FY Div. EPS growth FY Net land bank own ma t. own planted Share price ket cap 15F EV/planted 15F EV/mature CY PER, x yield, (inc. BA gains), gearing, FY EV/ EBITDA, x (ha.) (ha.) (ha.) 12-09- (m) (own) (own) 15F 16F 15F 16F 15F 16F 15F 16F 15F 16F 15F- 17F own FFB vol CAGR 15F- 17F EPS CAGR Re c Indonesia Astra Agro L. n/a 196,177 236,311 Rp 17,450 US$ 1,968 US$ 9,923 US$ 11,953 31.6 16.4 4.1 1.4-65.2 92.6 42.1 32.9 14.1 9.0 5.5 45.6 FV Rp 15,800 Eagle High P. 419,006 101,241 139,606 Rp 123 US$ 278 US$ 5,890 US$ 8,121 neg NM 0.0 0.0 NM NM 103.7 100.8 12.8 9.0 21.4 NM FV Rp 180 London Sum.* 215,917 79,976 93,135 Rp 1,360 US$ 665 US$ 6,290 US$ 7,325 15.2 16.0 4.0 2.7-33.4-5.1 NC NC 10.5 11.2 4.5 1.1 FV Rp 1,260 Sampoerna A. 246,873 56,823 79,141 Rp 1,440 US$ 195 US$ 3,978 US$ 5,540 9.7 11.5 3.1 2.6-17.4-16.1 53.1 53.1 5.5 5.7 3.8 (24.4) B Rp 1,760 Simple avg US$ 3,105 US$ 6,520 US$ 8,235 18.8 14.6 10.7 8.7 Ta rge t price Basis Malaysia Felda Global V. 355,864 272,805 329,683 RM 1.63 US$ 1,393 US$ 7,101 US$ 8,581-55.4 29.0 1.2 1.9 NM NM 19.4 29.9 13.0 10.0 1.4 #NUM! FV RM 1.50 Genting Plant. 150,912 92,457 126,251 RM 10.02 US$ 1,826 US$ 19,098 US$ 26,078 44.2 36.5 0.5 0.6-53.7 21.2 NC 4.6 29.1 25.7 7.7 23.4 H RM 9.60 IJM Plant. 78,484 44,340 58,389 RM 3.48 US$ 718 US$ 13,351 US$ 17,582 28.5 24.1 1.5 1.9-6.8 25.4 21.2 24.3 18.0 14.3 12.9 20.8 H RM 3.25 IOI Corp** 220,593 149,568 178,765 RM 4.22 US$ 6,226 US$ 11,100 US$ 13,267 61.2 30.3 1.2 1.3-95.0 324.7 92.6 92.9 33.4 20.7-0.1 152.2 FV RM 3.40 KL Kepong 245,905 174,523 190,952 RM 22.78 US$ 5,682 US$ 11,540 US$ 12,626 26.9 23.7 2.1 2.5-12.3 16.4 24.8 12.9 16.2 14.0 0.8 11.0 H RM 20.00 Sime Darby 647,373 526,052 595,139 RM 7.53 US$ 10,954 US$ 6,452 US$ 7,300 20.2 19.1 2.5 2.5-32.6-0.2 46.4 38.7 13.8 12.0 3.3 5.9 H RM 7.60 TSH Res. 82,841 27,177 45,301 RM 1.99 US$ 632 US$ 11,182 US$ 18,639 26.9 22.6 0.9 1.1-19.5 18.9 80.8 83.8 19.5 17.3 12.3 15.0 H RM 1.90 Simple avg US$ 27,431 US$ 11,404 US$ 14,868 21.8 26.5 20.5 16.3 SOP SOP Singapore Bumitama A. 191,561 91,731 116,413 S$ 0.74 US$ 918 US$ 11,073 US$ 14,052 14.9 14.8 1.6 1.2-26.2 0.2 59.9 64.7 11.3 9.8 13.5 3.7 H S$ 0.86 First Resources 312,488 122,918 176,858 S$ 1.98 US$ 2,228 US$ 14,202 US$ 20,434 18.9 17.7 1.7 1.4-30.7 7.0 8.2 2.5 10.4 9.1 8.3 13.6 H S$ 1.85 Golden Agri R. 558,000 356,115 372,951 S$ 0.34 US$ 3,028 US$ 15,325 US$ 16,049 31.9 23.7 0.3 1.1-18.7 34.6 26.1 63.3 12.9 9.6 4.7 32.3 NR S$ 0.29 Indofood Agri* 541,224 199,187 247,483 S$ 0.49 US$ 482 US$ 4,818 US$ 5,986 NM 15.2 0.0 0.0-82.3 231.3 29.7 38.3 13.1 7.8 7.0 98.4 H S$ 0.52 Wilmar Int'l 573,401 216,663 243,287 S$ 2.91 US$ 13,054 US$ 2,599 US$ 2,918 13.1 12.4 1.6 1.6-11.2 6.1 69.4 68.2 12.0 10.8 2.3 6.4 B S$ 3.70 Simple avg US$ 19,711 US$ 11,354 US$ 14,130 19.7 16.7 12.0 9.4 * Including rubber and other crops ** Excluding effective stake in associates land bank Source: Companies, Bloomberg Finance LP, DBS Bank/DBS Vickers/AllianceDBS estimates Page 2 Page 2
Malaysian palm oil production 2,200,000 2,100,000 Malaysian palm oil ending stock 2,900,000 2,000,000 2,700,000 1,900,000 1,800,000 1,700,000 1,600,000 1,500,000 2,500,000 2,300,000 2,100,000 1,900,000 1,400,000 1,700,000 1,300,000 1,500,000 1,200,000 1,100,000 1,300,000 1,000,000 1,100,000 Malaysian palm oil stock/usage ratio Malaysian palm oil exports 15.0 1,850,000 14.0 13.0 1,750,000 1,650,000 12.0 1,550,000 11.0 10.0 1,450,000 9.0 1,350,000 8.0 1,250,000 7.0 1,150,000 6.0 1,050,000 5.0 950,000 Top 10 Malaysian palm oil exports by destination Chg. m-o-m () - - Chg. y-o-y Chg. m-o-m Country INDIA 160,170 222,162 297,549 87,391 344,600 435,833 351,515 263,946 357,156 441,035 390,074-50,961 3,351,431 2,887,989 16 23 CHINA P.R 216,253 64,765 132,722 262,713 359,660 243,932 290,209 194,876 192,537 167,470 160,364-7,106 2,285,500 2,581,906-11 -13 EU 172,269 136,510 112,938 130,520 267,245 216,678 211,581 254,621 227,963 221,599 214,899-6,700 2,166,823 2,169,356 0-3 PAKISTAN 56,013 33,305 60,387 64,562 58,385 71,580 40,310 101,950 57,766 57,949 56,744-1,205 658,950 751,433-12 0 U.S.A 64,662 52,282 49,213 77,324 45,410 44,331 73,594 57,332 50,319 74,522 42,111-32,411 631,099 706,666-11 48 PHILIPPINES 40,464 64,622 54,943 51,385 48,901 41,132 46,016 47,796 66,462 53,750 62,988 9,238 578,460 465,284 24-19 VIETNAM 52,718 41,234 61,131 67,806 53,671 49,900 62,896 40,437 48,465 47,738 29,126-18,612 555,123 555,215 0-2 JAPAN 41,974 43,698 31,296 41,801 60,606 49,598 30,087 45,219 60,153 42,416 41,386-1,030 488,233 472,382 3-29 SOUTH KOREA 41,471 21,533 23,054 38,985 26,053 43,254 34,151 54,558 20,362 28,887 34,778 5,891 367,087 356,240 3 42 SINGAPORE 33,301 31,087 29,637 28,589 33,866 22,296 49,320 43,570 30,527 28,292 33,793 5,501 364,278 440,405-17 -7 Page 3
Amidst rising inventory, the market has already priced in El Nino premium, in our view 7,000,000 RM/ 4,000 6,000,000 5,000,000 Combined palm oil inventory in Malaysia, India, China (LHS) 3,500 3,000 4,000,000 CPO price (RHS) 2,500 2,000 3,000,000 Malaysia palm oil stockpile (LHS) 1,500 2,000,000 1,000 1,000,000 Combined China, India, Malaysia palm oil consumption (LHS) 500 - - 5/ 7/ 9/ 11/ 1/ 3/ 5/ 7/ 9/ 11/ 1/ 3/ 5/ 7/ 9/ 11/ 1/ 3/ 5/ 7/ 9/ 11/ 1/ 3/ 5/ 7/ 9/ Sources: Bloomberg Finance LP, MPOB, SEA of India, Cofeed.com, DBS Bank estimates Page 4
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20 total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15 total return over the next 12 months for small caps, >10 for large caps) HOLD (-10 to +15 total return over the next 12 months for small caps, -10 to +10 for large caps) FULLY VALUED (negative total return i.e. > -10 over the next 12 months) SELL (negative total return of > -20 over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. 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