Low-Key View as Prices Moderate
Key Takeaways:
• China & India CPO imports tumbled -24.4/-10.7% YoY in 11M22, respectively, which was partly offset by alternate edible oil products. On the flip side, EU officially implemented the deforestation regulation which would potentially hurt demand onwards.
• However, we see a bounce back in CPO import demands from China and India (accounting for ~29% export volume) in FY23F, potentially absorbing 8.9 mn mt of palm oil products, supported by rising consumption and more attractive prices compared to soyoil.
• The Ministry of Energy (ESDM) predicts that the demand for biodiesel will climb by +19.3% YoY to 13.1 mn kL as a result of the transition from B30 to B35, while the demand for bio solar is forecasted to increase by 3.0% YoY to 37.6 bn kL.
• GAPKI forecasts a -1.9% YoY decline in CPO production in FY23 to 51.5 mn mt (vs 52.5 mn mt in FY22E), given higher fertilizer prices due to the ongoing geopolitical conflict, while Malaysia's production edged up to 16.8 mn mt (+1.0% YoY).
• We anticipate that CPO prices will remain stable at MYR3,500-4,500/MT due to: 1) a stable global supply/demand situation; and 2) a stable crop yield supported by neutral weather patterns.
• We remain NEUTRAL for the plantation sector as we project the earnings to ease up amidst lower CPO prices alongside potentially higher fertilizer prices, thus lowering the margins. We continue to like DSNG IJ (BUY; TP: IDR795) with higher EV/ha than its peers of USD7,957/ha.
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