Malaysia’s March palm oil output rose to 1.392m MT (+11% MoM, +8% YoY), 2% above market expectation but still 3% below Kenanga’s estimate. The local palm oil production tends to spike up in March after a low February month. Likewise, exports also often bottom out in February; so recent March export spike to 1.318m MT (+30% MoM, -11% YoY) was no surprise but end-inventory of 1.715m MT was 3% tighter than consensus estimate and 12% below Kenanga’s as it had expected stronger output and softer exports. March average CPO price of RM4,216/MT was 7% stronger MoM but flattish YoY (+1%), helping to lift
1QCY24 average price to RM3,983/MT (versus RM3,997 in 1QCY23). Prices are likely to ease in 2Q as South America starts
harvesting soyabean and Hari Raya and Indian election-related orders fade. CPO price of RM3,800/MT for CY24-25 is maintained along with the NEUTRAL call.
The house places a sector valuation of 1.2x PBV is defensive but upside catalyst is not strong. Smaller upstream-centric players should see decent 1Q earnings but weak downstream margins are expected to dampen profitability of larger integrated such as SIMEPLT, IOI and KLK which dominate 60% of sector capitalisation.
Kenanga said it prefers PPB (OP; TP: RM18.50) for its regional agro/consumer exposure as well as upstream-centric players with growth potential such as TSH (OP; TP RM1.30) which is expanding, and rising Indonesian profits at UMCCA (OP; TP: RM6.00).
