Plantations - Bear trumps bulls at POC 2015
Recommendation: Neutral
The key takeaways for us from the 2015 Palm Oil Conference are that the CPO price could decline in 2H on the back of higher palm oil supply and declining discretionary biodiesel demand due to the lower crude oil price. However, CPO price could trend higher in 2Q due to weaker palm oil supply and stock. The key wild cards for 2015 will be Indonesia biodiesel demand, weather event and crude oil price. The average median CPO price forecast of RM2,200 per tonne among speakers is lower than our forecast of RM2,450 per tonne. A lower CPO price will be negative for upstream palm oil players. We maintain our Neutral call and preference for First Resources, Astra Agro and SIMP.
What Happened
During the POC conference held in Kuala Lumpur on 3-4 Mar, five speakers provided their views on the CPO price. Their forecasts for 2015 ranged from RM1,650 to RM2,600 per tonne, and the mean of the average price predictions worked out to be around RM2,200, which is lower than last year's RM2,384 per tonne. Most presenters are of the view that prices could be weaker in 2H due to concerns over higher palm oil supply and lower biodiesel demand.
What We Think
Our average CPO price forecast of RM2,460 per tonne is more bullish compared to the mean. One of the key differences lies in our higher crude oil price assumption against the speakers’ expectations of US$50-60 per barrel. We will review this assumption in the coming weeks along with the new biodiesel proposal in Indonesia. The other key variances lie with the view on palm oil supply prospects in Malaysia and Indonesia, and Indonesia’s biodiesel usage. We are projecting higher CPO supply and usage of biodiesel from Indonesia as we expect the Indonesian government to raise domestic biodiesel usage by putting in place some enforcement.
What You Should Do
We maintain our Neutral call on the regional plantation sector as we feel the bearish price view has been partly reflected through the underperformance of most plantation stocks in the region relative to the market over the past years. We advise investors to remain selective in their picks for this sector. We favour First Resources for its young age profile, Astra Agro for its corporate governance, and SIMP for the cheap implied asset value for its estates.
Source: CIMB Daybreak - 05 March 2015
Recommendation: Neutral
The key takeaways for us from the 2015 Palm Oil Conference are that the CPO price could decline in 2H on the back of higher palm oil supply and declining discretionary biodiesel demand due to the lower crude oil price. However, CPO price could trend higher in 2Q due to weaker palm oil supply and stock. The key wild cards for 2015 will be Indonesia biodiesel demand, weather event and crude oil price. The average median CPO price forecast of RM2,200 per tonne among speakers is lower than our forecast of RM2,450 per tonne. A lower CPO price will be negative for upstream palm oil players. We maintain our Neutral call and preference for First Resources, Astra Agro and SIMP.
What Happened
During the POC conference held in Kuala Lumpur on 3-4 Mar, five speakers provided their views on the CPO price. Their forecasts for 2015 ranged from RM1,650 to RM2,600 per tonne, and the mean of the average price predictions worked out to be around RM2,200, which is lower than last year's RM2,384 per tonne. Most presenters are of the view that prices could be weaker in 2H due to concerns over higher palm oil supply and lower biodiesel demand.
What We Think
Our average CPO price forecast of RM2,460 per tonne is more bullish compared to the mean. One of the key differences lies in our higher crude oil price assumption against the speakers’ expectations of US$50-60 per barrel. We will review this assumption in the coming weeks along with the new biodiesel proposal in Indonesia. The other key variances lie with the view on palm oil supply prospects in Malaysia and Indonesia, and Indonesia’s biodiesel usage. We are projecting higher CPO supply and usage of biodiesel from Indonesia as we expect the Indonesian government to raise domestic biodiesel usage by putting in place some enforcement.
What You Should Do
We maintain our Neutral call on the regional plantation sector as we feel the bearish price view has been partly reflected through the underperformance of most plantation stocks in the region relative to the market over the past years. We advise investors to remain selective in their picks for this sector. We favour First Resources for its young age profile, Astra Agro for its corporate governance, and SIMP for the cheap implied asset value for its estates.
Source: CIMB Daybreak - 05 March 2015
