KUALA LUMPUR: Palm oil exports rose 4 per cent month-on-month (mom) and 2 per cent year-on-year (yoy) to 1.67 million tonnes in October due mainly to stronger demand from India, Pakistan and the US.
"We suspect this could be partly due to attractive crude palm oil (CPO) price discount against other key edible oils.
"Also, India could be stocking up ahead of the Diwali festival on 13 November. As CPO inventory levels in key consumer countries remain below their respective historical averages, we expect palm oil exports from Malaysia to
remain fairly healthy until a more significant pick-up in Indonesia's palm oil output is evident," CGS-CIMB Research said in a report today.
Meanwhile, Malaysia's palm oil stocks fell 9 per cent mom and 33 per cent yoy to its lowest since Jun 2017, at 1.57 million
tonnes as at end-October 2020.
The stock level was 1 per cent below our forecast of 1.58 million tonnes due to lower-than-expected production.
However, it was broadly in line with Bloomberg consensus forecast of 1.59 million tonnes, and higher than Reuters' poll of 1.56 million tonnes, CGS-CIMB Research noted.
Stockpiles remain low compared to historical levels, with average palm oil stock level in Malaysia at end-October for the past 10 years has been around 2.2 million tonnes.
The tight stockpile level and low supplies of other edible oils will likely keep CPO prices supported, the research house said.
Further, the research firm said CPO output fell 8 per cent mom and 4 per cent yoy to 1.72 million tonnes in October 2020, weaker than historical trends of a 3 per cent mom increase in October output over the past 10 years.
The mom fall could potentially be due to the implementation of movement control orders in Sabah from September 29 as well as worker shortages due to the current freeze on foreign worker permits.
"CPO production fell 4 per cent yoy to 16.3 million tonnes in 10 months of 2020, making up 84 per cent of our full-year forecast of 19.48 million tonnes.
"We deem this to be broadly in line as over the past 10 years, whereby 10 month production on average made up 83 per cent of full-year output.
"Seasonally, CPO production in Malaysia peaks in August-October, and starts to trend lower in November-December," the firm said.
CGS-CIMB Reserach project palm oil stocks to rise by 2 per cent mom to 1.62 million tonnes at end-November 2020, with
output and exports down by 5 per cent mom and 15 per cent mom, respectively.
"We expect exports to slow down post festive demand and the sharp rise in CPO price may have led to some demand rationing.
"We expect CPO prices to trade in the range of RM2,600-3,200 per tonne in November and raise our average CPO price to RM2,620 per tonne for 2020 from RM2,500 per tonne in view of the stronger-than-expected CPO price achievement over the past month.
"Key factors influencing prices are the La Nina impact on oilseeds and palm oil supplies, China's purchases to build up its stock reserves, and policies on biodiesel mandates," the firm said.
CGS-CIMB Research highlighted Genting Plantations Bhd, with a target price of RM10.70, for its rich land bank and young estates.
The group has one of the youngest estate age profiles among its big-cap peers in Malaysia.
Also, Hap Seng Plantations Bhd, with a target price RM1.85, is premised on the view that the current implied low enterprise value per hectare (EV/ha) of RM30,000 per hectare for its Roundtable on Sustainable Palm Oil (RSPO)-certified contiguous estates in Sabah could attract suitors, leading to a share price re-rating in the medium term.
CGS-CIMB Research also liked Ta Ann Holdings Bhd with a target price of RM3.17, given its improving second half (2H) 2020 forecast earnings prospects for both its plantation and timber divisions, on the back of stronger fresh fruit brunch (FFB) production, higher CPO prices as well as improved demand conditions for its log products, and secondly, decent dividend yields of 2.5-3.5 per cent for financial year (FY) 20-22.