SINGAPORE (Mar 5): CIMB is maintaining its “neutral” call on the agribusiness sector while maintaining its average crude palm oil (CPO) price forecast of RM2,700 per tonne ($913.33) for 2018.
This comes after news of India’s move to raise the import duties for CPO and refined palm oil to 44% and 55%, respectively, which the research house deems positive for oil seed farmers in India as the higher import duties could boost oilseed prices in India.
As such, the research house’s top picks are First Resources and Wilmar International, both rated “add” at target prices of $2.03 and $4.10 respectively.
Based on CIMB’s calculations, the effective import duty on crude palm oil in India has increased by 32.9 percentage points to 48.4% from 14.45% on 11 Aug 2017.
“The attraction of First Resources lies in its strong output growth prospects, undemanding valuation and attractive near-term dividend yield of 3% (due to recent special dividend payout)… We like Wilmar for its attractive valuation and plans to unlock value via the listing of its China operations by 2H2019,” explains analyst Ivy Ng in a report last Friday.
The higher duties are estimated to lift palm oil prices in India as much as 15%, which could lead to weaker demand for palm oil and result in lower CPO prices, which would in turn prove negative for pure planters, says Ng.
According to the analyst, the duty revision however remains broadly neutral for refiners given that the duty differential between crude and refined palm oil is intact at 10%.
“With the revision, CPO will be subject to a 44% import duty, which is now 14% to 19% pts higher than for other edible oils compared to 0-5% pts higher under the previous import duties structure. The revised import duty for refined palm oil of 54% is now also 14-19% pts higher than the import duties for other edible oils (vs. 5% previously). This could reduce palm oil’s competitiveness vs. other edible oils in India,” she adds.
As at 4:11pm, shares in First Resources and Wilmar are trading at $1.74 and $3.12, respectively.
