In a palm oil dialogue session with the Plantations’ minister, we were
pleasantly surprised to learn the government was pushing ahead with
the full implementation of B10 in Malaysia by June 2014. This could
raise palm oil usage in Malaysia by up to 1m tonnes and cut stocks.
Also, Malaysia’s top five largest
planters are committed to using
biodiesel in their vehicles. This will be
positive for CPO prices in 2014 as it
will help raise palm oil usage in
Malaysia. But we do not expect the
market to react to this news
immediately given past delays.
maintain Neutral with key picks being
Wilmar, Golden Agri and Indo Agri.
We attended the Reach and Remind
Friends of Industry Seminar 2013 and
Dialogue, organised by the Malaysian
Palm Oil Council (MPOC).
1) plans to implement
B10 (10% biodiesel blend) by June
2) indications that the top five
palm oil producers in the country will
start using biodiesel in their vehicles
3) a replanting subsidy of
RM1,000 per ha to entice replanting
of old estates to reduce palm oil
4) confirmation that
Malaysian palm oil has succeeded so
far in meeting tighter quality
regulations on edible oils in China;
5) MPOC mulling over a plan to
brand Malaysian palm oil.
What We Think
Overall, a 10% biodiesel blend could
mean an additional take-up of 1m
tonnes of palm oil (5% of total CPO
output) in Malaysia. This is
significant as domestic disappearance
(or usage) in Malaysia worked out to
2m tonnes based on 2012 Malaysian
Palm Oil Board stats and the local
biodiesel industry exported 0.03m
tonnes last year. We feel this could be
a potential game changer for CPO
price if fully implemented.
What You Should Do
However, given historical delays in
meeting Malaysia biodiesel mandates,
we feel the market is unlikely to price
this in until it starts to see material
progress on this issue. We maintain
our price forecasts of RM2,840 per
tonne for 2013 and Neutral rating for
the sector. (Read Report)
Read Related News
We expect Wilmar to benefit from the current low
CPO price through higher sales volume and better
The stock is trading at 1.3x book,
which is below its 3-year average of 2.1x. It is a
beneficiary of China’s consumption growth story.
Golden Agri is our key play on expectations of a
CPO price recovery given its strong liquidity.
also be less affected by the minimum wage hike in
Indonesia due to its geographically diversified
Sime Darby remains our top pick among the
Malaysian planters as it offers more attractive P/Es
compared to its big cap peers and potential
earnings upside from M&As.
We are also positive
on the group’s recent acquisitions.
Source : CIMB Research
Labels: CPO, Golden Agri, Indofood Agri, Palm Oil, Wilmar International