Maybank Research lowers CPO average selling price

KUALA LUMPUR: Maybank Investment Bank (IB) Research has revised downwards its crude palm oil (CPO) average selling price (ASP) and maintained a “neutral” call on the plantations sector.

“We  revise  down  our  2015/16/17  CPO ASP  forecasts  by -13/-8/-8% to  RM2,100, RM2,300, RM2,400 per tonne respectively (from RM2,400/2,500/2,600 per tonne).  For our US dollar forecasts, the revision was steeper at -19/-17/-16% incorporating a weaker ringgit of 3.80-3.90  (from 3.50).

“Incorporating  the  lower  CPO  ASP  and  FRS16,  we  cut  2015 - 17 net profit forecasts of companies under our coverage by -4-60% (except Ta Ann, with 2015’s earnings lifted by timber earnings),” it said on Wednesday.

Given the near term headwinds, Maybank Research maintained its “neutral” call on the sector. But it said long term investors should look to a better 2016 as it believed there was limited  downside to CPO ASP as commodity prices in US dollar are near post-GFC  lows. 

Indonesia’s  mandated biodiesel B15  will  boost demand and it continued to pin hope on the strengthening El Nino to boost prices in 2016. Meanwhile, focus on companies with good long  term organic growth,  and take shelter in asset buffer.

The research house said while three months CPO price had corrected by 12% year-to-date (Aug 28: RM1,991 a tonne) in Ringgit terms, the correction was far steeper in US dollar terms which was down -27% to US$474 per tonne over the same period. 

The correction was lesser for soyoil (-13%) and  rapeseed oil  (-8%),  which resulted in a widening of price gap of late. A weakened Ringgit and Rupiah have provided some relief for planters in the region.

As  the  current  El  Nino (with  indicators  resembling  the  strong 1997/98  El  Nino)  has  failed  to  live  up  to  expectations  with  no immediate  impact  on FFB  production,  the  market  has  largely ignored  this weather  risk  at  the  moment  but  focused  on  several headwinds,  namely  record  US soybean  planting  amidst  ample global soybean supply, relatively high palm oil stockpile and low crude oil prices discouraging discretionary biodiesel demand.

“These  headwinds  mean  that CPO price will remain weak over the remaining of 2015,” said the research house.