瑞信亚太地区农业行业马来西亚棕榈油理论的再讨论201962133页

DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.21June2019AsiaPacific/MalaysiaEquityResearchAgriculturalProducts&AgribusinessMalaysiaPalmOil[e-mail]■Sectorrecoveryyettocomethrough.Malaysianplanterspostedadisappointing1Q19aspalmproductpricescameinweakerthanexpected.Thesectorhasyettorallyinameaningfulmanner,promptingustotakeastepbackandre-evaluatethesector.■Dialingbackouroptimismintheshortterm,butremainpositive.Whilestockpilehasbeenprogressivelycomingdown,thestrongproductiontrendisincreasinglybecomingaconcern.Asaresult,weareturningmorecautiousfornow.Wecontinuetobelievethatarecoveryisdue,thoughtakinglongerthanexpected.■NewCPOpriceforecastofRM2,150/tandRM2,400/tfor2019Eand2020E,respectively(previousestimateswereRM2,400/tandRM2,600/t,respectively).Sectorcatalyststhatcouldtriggerareratinginclude:(1)strengtheningofElNiño;(2)rapidreductioninpalmoilinventory;(3)Chinacontinuingitspalmoilpurchases;(4)IndonesiaimplementingtheB30biodieselmandateearlierthanexpected.■ContinuetopreferplanterswithhighestearningsleveragetoCPOpriceandhence,westickwithSimePlant(cutTPslightlytoRM5.70fromRM5.90;trimFY19-21EEPSby12-56%)andGentingPlant(TPcuttoRM11.70fromRM11.75;trimFY19E/20EEPSby19%/11%)asourtoppicks.WealsoupgradeIOItoNEUTRALandliftTPslightlyfromRM4.15toRM4.20aswedeemitsvaluationstobefairatthispoint(cutourFY19-21EEPSby2-18%).WealsoliftourTPtoRM25.80(fromRM25.30)andcutFY19-21EEPSby3-14%forKualaLumpurKepong.Keyrisks:(1)abloatingstockpile;and(2)persistentlyweakoilprices.Figure1:CPOpriceisnegativelycorrelatedtoinventory3YAvg1,0001,5002,0002,5003,0003,5002345678Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19(RM/t)(mnt)MY+IDinventoryCPOprice(RHS)Correlation:-65%-25%Source:MPOB,GAPKI21June2019MalaysiaPalmOilSector2FocuschartsFigure2:CPOpricehasaveragedRM1,995/tYTDFigure3:YTDpriceperformance—amixedbagPost-GFClow:1,7142019YTD:1,9951,4001,6001,8002,0002,2002,4002,600Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19(RM/t)-3%-0.6%0.4%5%-0.2%-6%-3%0%3%6%IOIKLKSDPLGENPCPOpriceSource:MPOBSource:Companydata,MPOBFigure4:China’sstrongpalmoildemandYTDFigure5:Malaysia’s5M19output+9%YoY-24%13%5%34%-30%-20%-10%0%10%20%30%40%01,0002,0003,0004,0005,0006,0002016201720184M19('000t)yoy(RHS)1,0001,3001,6001,9002,200JFMAMJJASOND20152016201720182019Source:GAPKISource:GACCFigure6:Palmoildemandisstillexpectedtogrowat2xtherateofsupplythisyearFigure7:EarningssensitivitytoCPOpriceincreaseofRM100/t13.6%5.0%10.0%-8%-4%0%4%8%12%16%200820092010201120122013201420152016201720182019FProductionConsumption0%10%20%30%40%50%IOIKLKepongGentingPlantSimePlantSource:OilWorldSource:CreditSuisseestimates21June2019MalaysiaPalmOilSector3RevisitingourthesisAdisappointing1Q19Itwasanotherlacklusterquarteraspalmproductpricescontinuedtoweighonprofits.CPOpricemarginallyimprovedQoQ(+2.4%)butwasstillwellbelow1Q18levels(-20.5%YoY),whilePKpricescontinuedtodecline(-10%QoQand-40%YoY).SectorrecoveryyettocomethroughThesectorhasnotquiterecovered,aswehadanticipatedatthestartoftheyear.ThoughCPOpriceisnow15%aboveitspost-GFClow,itisstilltradingbelowRM2,000/tandissignificantlybelowour2019forecastofRM2,400/t.Hence,we’vedecidedtoreviewourthesistoseeifitstillstands.Sofar,palmoilinventoryhasbeencontractingsteadily.Asof1Q19,combinedstockpile(MalaysiaandIndonesia)is25%belowpeakandnormalisingtowards3-yearaveragelevels.Thedemanddrivershavegenerallyplayedoutaspredicted,withtheexceptionofChinawhichexceededexpectations(owingtotheAfricanswinefeveroutbreak).However,thestrongproductiontrendisbecomingaconcernaslateststatisticsshowMalaysianpalmoilproductiontobe9%higherYoYandIndonesia’sat21%higher(vs2018globalproductiongrowthof8%).Shouldproductionmaintainitsmomentum,thereisachancewemayseearepeatof2018’sbloatedstockpilesituationin4Q19.We’dliketopointout,however,thatinventorylevelstodayare10%lowerrelativetothecorrespondingperiodlastyearandtreestressmaylikelykickinifproductioncontinuestobeintheoverdrivemodeoveranextendedperiod.Dialingbackouroptimism,fornowFollowingtheabove,wearedialingouroptimismdownanotchandturnmorecautiousforthetimebeing.Thatsaid,weremainconfidentthatasectorrecoveryisimminent,takinglongerthanexpectedtopanout.WeadjustourCPOpriceforecaststoRM2,150/tandRM2,400/tfor2019Eand2020E,respectively,andreviseearningsestimatesforoursectorcoverageaccordingly.WepreferplanterswhowouldbenefitmostfromaCPOpricerecoveryandthereforestickwithSimePlantandGentingPlantasourpreferredpicks.BothstocksarecurrentlythecheapestintermsofEV/maturehaandEV/EBITDAamongstourcoverage.Thesectorhas,infact,outperformedthebenchmarkindex(YTDoutperformanceof+2.4%)andcontinuestolookreasonablerelativetohist