Sector Update � Plantation (OVERWEIGHT,
maintain)
- Production trended lower in June, inventory down
CPO production in June 2014 unexpectedly declined
by 5.3% MoM to 1.60m MT. Contrary to our expectations, FFB and oil yields
declined for all three regions, particularly in Sabah and Sarawak. It may be
due to the delayed impact of prolonged dry weather in the early part of the
year as well as the exceptionally dry conditions since then as the impact of
a large number of Indonesian workers leaving Malaysia for the Ramadan
holidays is likely to be felt only in July and August. The lower CPO
production and June exports of 1.48m MT coupled with higher domestic
disappearance and sharply lower imports led to a 10.0% MoM decline in closing
inventory to 1.66m MT. Soybean oil premium and CPO premium over Brent crude
have also narrowed. Nevertheless, CPO 3-Month futures remain weak as traders
track the prospects of higher CPO output and another record US soybean
production. We maintain our CPO ASP forecasts, sector OVERWEIGHT rating and
stock recommendations.
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