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Plantations - Could Malaysia biodiesel be the game changer for CPO price?

Written By Stock Fanatic on Tuesday, February 5, 2013 | 5.2.13

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.

We maintain Neutral with key picks being Wilmar, Golden Agri and Indo Agri.

What Happened
We attended the Reach and Remind Friends of Industry Seminar 2013 and Dialogue, organised by the Malaysian Palm Oil Council (MPOC). 

The key highlights are 
1) plans to implement B10 (10% biodiesel blend) by June 2014; 

2) indications that the top five palm oil producers in the country will start using biodiesel in their vehicles soon; 

3) a replanting subsidy of RM1,000 per ha to entice replanting of old estates to reduce palm oil supply; 

4) confirmation that Malaysian palm oil has succeeded so far in meeting tighter quality regulations on edible oils in China; and 

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)

Highlighted Companies

Wilmar International
We expect Wilmar to benefit from the current low CPO price through higher sales volume and better refining margins. 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
Golden Agri is our key play on expectations of a CPO price recovery given its strong liquidity. It may also be less affected by the minimum wage hike in Indonesia due to its geographically diversified estates.

Sime Darby
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.

Read Related News
PLANTATIONS - Most are light on planters
Monday, 4 February 2013
- CIMB Research

Source : CIMB Research


Posted on Tuesday, February 5, 2013 | 5.2.13


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