Sector Update � Plantation (OVERWEIGHT,
maintain)
- CPO price still under pressure
Despite the Ramadan holidays, CPO production in
July 2014 increased by 6.1% MoM, which together with a 2.3% MoM decline in
exports and lower domestic consumption contributed to a slight increase in
closing stocks from 1.66m MT in June 2014 to 1.68m MT in July 2014. Weak
export growth as well as prospects of a bumper US soybean harvest have keep
CPO locally delivered as well as future prices under pressure. Adding to the
poor sentiment is the delay in the implementation of the B5 mandate in East
Malaysia and a reduced chance of a strong El Ni�o event during the Northern Hemisphere fall and early
winter. There are however a number of medium to long term positives: (i)
Malaysia and Indonesia remain committed to the B10 biodiesel mandates and
Brazil is moving to B7 in November; (ii) palm oil premium over crude have
narrowed significantly; (iii) palm oil closing stock-to-exports ratio has
declined to 1.1 months in July 2014; and (iv) the stock-usage ratio for 8
Major Oils are expected to be tighter in 2014-15. We maintain our CPO ASP
assumptions (RM2,700/MT in 2014 and RM2,850/MT in 2015-16), sector OVERWEIGHT
rating and plantation stock recommendations.
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