CGS-CIMB Research analysts Ivy Ng and Nagulan Ravi are keeping their “neutral” stance on the agribusiness sector.
This comes as India has lowered its basic import duty on crude palm oil (CPO) to 10% from 15%, which took effect from June 30.
The cut will be effective for a period of three months, and will reduce the effective tax rate on CPO to 30.25% from 35.75% previously.
In addition, imports of RBD palm olein will be allowed without restrictions till the end of December.
It can be imported through all ports in India with the exception of the southern state of Kerala.
See also: Wilmar is RHB's top pick as Chinese CPO demand to pick up pace
The movements, according to Ng and Ravi, comes as no surprise amid talk that the Indian government was looking through a proposal to cut edible oil duties.
While the news to allow imports of RBD palm olein without restrictions will negatively impact the Indian palm oil refining industry, Ng and Ravi view the news as positive for upstream plantation companies including First Resources.
The news will also positively impact Malaysian/Indonesian refiners like Wilmar International.
Ng and Ravi have kept “add” on both First Resources and Wilmar with target price estimates of $1.69 and $6.15.
To the analysts, First Resources has “strong output growth prospects” due to its young estates and undemanding valuation at 14.1 times price-to-earnings (P/E) for the FY2020.
Wilmar, too, has attractive valuations, with growth potential in China.
“Key catalysts are better-than-expected earnings due to strong CPO prices and crushing activities and rising
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interest in Wilmar as a cheaper and more liquid entry into Yihai Kerry Arawana,” they write in a July 2 report.
As at 4.23pm, shares in First Resources are trading at $1.34, or 1.42 times P/B, according to CGS-CIMB’s estimates, while shares in Wilmar are trading at $4.64 or 1.08 times P/B.
Photo: Bloomberg
