Late planters to be negatively impacted by Indonesian moratorium

The company told Bursa Malaysia yesterday that revenue for the current quarter improved year-on-year (y-o-y), mainly due to higher fresh fruit bunch (FFB) production from Indonesia, apart from the higher sales of refined palm products.

KUALA LUMPUR: The implementation of the three-year moratorium on new palm oil plantation development and a review of existing plantation permits in Indonesia would be a big blow for late entrants to the industry.

PublicInvest Research said the announcement by the Indonesian government last Friday could be negative to plantation players who are relatively new or with significant plantable landbank in Indonesia as their plantation expansion plans could be halted. 

It said the order by the Indonesian government is aimed at improving the sustainability of palm oil plantations as part of environmental protections as well as help to improve productivity in small owners and help clarify the land ownership. 

"We believe the three-year ban policy would temporarily help ease the rising pressures from environmentalists and EU groups. 

"In addition, the temporary ban would also slow down the Indonesian FFB production growth going forward, which helps provide support for palm oil prices and ease the oversupply concerns in the future," it said.

The research house said the moratorium is likely to bring down the average CPO production growth from 2020 onwards, initially projected to grow at a slight 3%.

Indonesia, which accounts for 51.7% of global palm oil production is expected to see a rise of 5.5% year-on-year to 38.5 million metric tonnes this year. 

PublicInvest does not see any significant impact on the plantation companies under its coverage as a majority have almost fully planted their landbank in Indonesia.

"TSH, which has closed to 90% of their plantation landbank in Indonesia, has already slowed down their new planting activities (less than 500 ha p.a.) since few years ago," it said.

Its top pick, Ta Ann, has no exposure to Indonesia. 

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