The planned higher biodiesel mandate in Indonesia will be medium-term positive for Indonesian biodiesel producers such as Wilmar International, Golden Agri-Resources and First Resources, said CGS-CIMB Research analysts Ivy Ng Lee Fang and Nagulan Ravi.
This change in mandate would allow the companies to expand their revenues and earnings base, the analysts said in their June 30 report. However, the earnings impact is not expected to be significant.
Last week, Indonesia’s Deputy at Coordinating Ministry Septian Hario Seto said the country is considering a plan to raise its biodiesel mandate to help lower fuel import costs and absorb overflowing palm oil stockpiles. Its government plans to raise the biodiesel mandate to 35% from 30%.
If the plan to raise the biodiesel mandate is carried out, CGS-CIMB estimates that Indonesia’s biodiesel demand could rise to 11.8 million kiloliters from the current 10.1 kiloliters annual target, assuming the new mandates are applied to all sectors. This implies potential incremental palm oil usage of 1.5-1.6 million tonnes for biodiesel purposes.
“The news is positive in the medium term for crude palm oil (CPO) prices as higher usage of palm oil for biodiesel will boost demand for palm oil. However, we believe it is unlikely to significantly alter the current palm oil supply glut situation in Indonesia as it will take time for Indonesia to implement the higher biodiesel mandates,” the analysts said.
For the first five months of 2022, Indonesia consumed 3.75 million kiloliters of palm-based biodiesel, which is broadly in line with its full-year target of 10.1 million kiloliters, they point out.
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As valuations are undemanding following recent price corrections, the analysts maintain their average CPO forecasts of RM5,600/RM3,800 ($1,771/$1,201) per tonne for 2022/2023 as well as a “neutral” rating on the sector.
Wilmar is one of CGS-CIMB’s key picks in the sector. The analysts’ target price for Wilmar, Golden Agri and First Resources are $5.69, 30 cents and $2.10 respectively.
As at 10.19am, shares in Wilmar, Golden Agri and First Resources are trading at $4.05, 24.5 cents and $1.61 respectively.
