Plantation sector
Malaysia’s crude palm oil (CPO) stockpile slid to 2.7 million tonnes (+25.2% year-on-year [y-o-y], -6.4% month-on-month [m-o-m]) in April due to lower-than-expected production and good export figures for the month. We anticipate the stockpile to continue to trend down in May and June in light of the scope for exports to improve on the back of low CPO price and stable production outlook. CPO output plateaued at 1.65 million tonnes (+5.8% y-o-y, -1% m-o-m), on the back of seasonal weather factors.

Exports hit 1.65 million tonnes (+7.95 y-o-y, +2% m-o-m) in April, led by China and India, coupled with festive Ramadan demand and high oil prices that enhance the attractiveness of biodiesel blending. We expect exports to hit 1.7 million tonnes in May due to Hari Raya restocking, with the current US$130 (RM541) per tonne spread over soybean oil price to persist post recent correction.

Despite the improving stockpile outlook, any adverse trade-war developments may weigh on CPO prices — no thanks to the pressure on soybean prices. The current spread has widened to US$130 per tonne, but soybean price dropped to US$590 per tonne, which may cap any CPO price recovery in the shorter term. However, we believe current CPO prices are attractive amid higher oil prices.

On a quarter-on-quarter (q-o-q) basis, Malaysian stocks should perform marginally better in the first quarter of 2019 (1Q19), on the 5% q-o-q improvement in CPO prices, stronger exports and production. However, we still expect 1Q19 plantation results to remain weak relative to their projected full-year earnings. We expect CPO prices to be stronger in 2H19. Our picks are FGV Holdings Bhd and TSH Resources Bhd. — AllianceDBS Research, May 13