SINGAPORE (Apr 13): The plantation sector has not been spared by the Covid-19 pandemic. Like any other industry, counters have become victims of panic-induced selling.
In a Monday report, DBS analysts William Simadiputra notes that Malaysia’s crude palm oil (CPO) stockpile for March came in at 1.7 million metric tonnes, down 41% year-on-year. The sector’s exports fell 27% y-o-y, while output fell 16%.
However, on a month-on-month basis, the numbers offered some brief respite. CPO stockpile figures remained flat, while exports and output expanded by 9% and 8% respectively.
The improvement in exports was spearheaded by a 29% increase in exports to the European Union (EU), as well as a 43%jump in exports to Pakistan.
According to analysts, this helped to mitigate the lower exports to India and China that fell 97% and 14% respectively.
Simadiputra stresses that the sector’s export growth over the next couple of months to India and China will be the key development that investors should pay attention to.
“[This] can underline the resilience of CPO demand in the face of the Covid-19 pandemic and keep stockpile stable,” says Simadiputra.
“We assume that the partial lockdown of Malaysia, especially in the Sabah region, will not have any impact on its CPO output,” he adds.
Looking ahead, Simadiputra expects CPO prices to keep to the brokerage’s estimated range of RM2,450 ($803.70) per tonne. However, the analysts are keeping a close watch on the Covid-19 outbreak, as well as Indonesia’s biodiesel programme.
On the whole, Simadiputra opines that the supply-demand situation in the plantation sector remains better than 2019.
“Though there were supply-driven price pressures in 1HFY2019, we foresee low single-digit y-o-y output growth for Indonesian and Malaysian estates this year,” says Simadiputra.
On a local front, Singapore’s plantation counters have plunged in tandem with the global sell-off induced by the Covid-19 outbreak.
Heavyweights such as Bumitama Agri and Wilmar International have slid 48% and 19% respectively year-to-date. First Resources, too, has fallen some 35%, while Indofood Agri Resources has sunk 9%.
Although the cheap prices might be enough to lure investors in, Simadiputra advises investors to proceed with caution, and focus on quality stocks with solid fundamentals.
“We like planters with good underlying plantation assets (as measured by their CPO yield per hectare and margin metrics), as they can better withstand CPO price fluctuations moving ahead,” he says.
DBS is reiterating its “buy” calls on Bumitama Agri, Wilmar and First Resources with respective target prices of 81 cents, $4.00 and $1.99.
However, the brokerage has a “hold” call on Indofood Agri with a target price of 29 cents.
As at 11.29am, shares in Bumitama Agri are trading 0.5 cent higher, or 1.2% up, at 41 cents, while shares in Wilmar are trading four cents lower, or 1.2% down, at $3.39.
Shares in First Resources are trading two cents lower, or 1.6% down, at $1.25, while shares in Indofood Agri are trading flat at 30 cents.
