On the back of lower crude palm oil (CPO) output from Malaysia in February, analysts from DBS Group Research and RHB Group Research are including Singapore plantation stocks Wilmar International, Bumitama Agri (BAL) and First Resources among their top picks.

CPO stockpile fell 1.9% y-o-y and 2.0% m-o-m for the month of February, while stocks fell to 1.3 million metric tonnes, due to weaker-than-expected output of 1.1 million metric tonnes.

To DBS’s team of analysts William Simadiputra, Woon Bing Yong and the Malaysian Research team, CPO prices are likely to remain supported in the upcoming months as stockpile is expected to remain low in March.

RHB’s Hoe Lee Leng, Christopher Andre Benas and the Singapore research team similarly buoyed CPO prices in the short term due to heightened demand on the back of CPO prices being at a US$195 ($262.05) per tonne discount to soybean oil (SBO).


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Soybean prices have rallied recently, rising as much as 28% in the last two months on the back of weather-related issues in South America. The rally in soybean prices are also due to a global commodity rally led by crude oil.

“As a result, SBO has returned to trade at a premium to CPO of US$195/tonne (from US$40/tonne discount last month). In our view, CPO demand could return in the coming months from price sensitive countries, particularly as Ramadan is coming up. The CPO and gas oil gap remained relatively stable at US$374/tonne (from US$364/tonne last month),” writes the RHB team led by Hoe.

China has also reported slight improvement m-o-m in its CPO stock levels, but fell 30% y-o-y. China’s CPO imports from Malaysia fell 26% m-o-m and 46% y-o-y in February, likely due to the price premium with SBO, and the high soybean stock levels, note the team.

“However, going forward, given China’s still low CPO stocks, it may increase buying activities in March, in view of the current CPO price discount. In 2020, China’s total palm oil imports fell 14% y-o-y.”

India’s stock levels, too, fell in February, with a 21% decline m-o-m and 53% drop y-o-y, following the country’s import duty hike in the beginning of the month.

“Given the reversal of CPO-soy price premiums, we expect India’s demand to resume in the coming months. In January, India’s total CPO demand rose 35.4% y-o-y,” writes the team.

On the developments, the RHB team has kept its “neutral” call on the sector as they are currently reviewing their CPO price assumptions as prices continue to mirror that of SBO prices, which have been on the upward trend. It has also kept its “buy” call on Wilmar, with a target price of $6.30.

“We need to watch out for soy crop output in South America and the US planting intentions report, which comes out at end-March, to determine soy price direction going forward. Meanwhile, we expect prices to stay buoyant in 1Q2021 on low stock levels and low output season, but prices should moderate from late-2Q2021 as productivity improves. Risks include La Nina’s impact worsening in South America, reversal of crude oil prices trend, Malaysian labour shortage exacerbating, and rising ESG concerns,” they say.

For the team at DBS, it believes global demand will “bounce back further” despite the “now firm CPO prices” since the stockpile levels of major buyer countries are still “relatively low” as at end-January.

The DBS team has also noted that the share price performance of Singapore and Indonesia CPO planters was mixed in the wake of the results from the 4QFY2020, with Indonesia’s London Sumatra (LSIP) and Bumitama Agri (BAL) ahead of its expectations.

“We believe that investors have discounted the planters’ 1HFY2021 earnings performance, as some of them have hedged their positions in 4QFY2020, coupled with higher export levies that could limit their potential upside,” writes the DBS team.


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“Our overall earnings and valuation are pegged to an average selling price (ASP) of US$570-600 per metric tonne in 2021 (FY21 CPO price forecast of US$617 per metric tonne). We reiterate our ‘buy’ calls for First Resources, BAL and LSIP. We also like Wilmar for its end-to-end food producing platform and apparent undervaluation,” it adds.

DBS has maintained its “buy” call for Wilmar with a target price of $6.67. The team has also given target prices of $1.83 and 66 cents for First Resources and BAL respectively.

As at 11.44am, shares in Wilmar, First Resources and BAL are trading at $5.34, $1.44 and 48.5 cents respectively.