According to CGS-CIMB Research, the move could shift the product mix of palm oil exports in favour of CPO over processed palm oil and reduce the value added palm oil exports.
“The suspension of export duty has historically been positive for upstream planters such as Hap Seng Plantations Bhd and Ta Ann Holdings Bhd as local CPO prices may rise to reflect the removal of the export duty.
“However, given that the export duty for the current month is already 0%, we expect the news to have minimal impact on CPO prices,” said the research unit in its latest report.
The suspension of export duty will also improve local CPO export competitiveness against Indonesia, which recently raised its CPO export levy by US$5 to US$55 per tonne.
On the other hand, the latest policy could cost local palm oil refiners, making them less competitive against Indonesian refiners, which are now enjoying a refining margin advantage of US$20 per tonne from the export levy differential between refined palm oil and CPO export levy versus none for Malaysian refiners and downstream processors.
However, this news is neutral for integrated players such as Wilmar International Ltd, IOI Corp Bhd, Genting Plantations Bhd and Kuala Lumpur Kepong Bhd as the better CPO price prospects and higher refining margin in Indonesia will offset the weaker refining margin for Malaysia.
The research house is also maintaining a neutral on the sector with local top picks namely Genting Plantations, Hap Seng Plantations and Ta Ann. Regionally, its top picks are Wilmar and First Resources Ltd.
CGS-CIMB also pointed out that the decision to suspend the export duty could be seen as a potential strategic move by Malaysia to woo the Indian market, which favours CPO over refined palm oil.
It was reported that India has started to import more palm oil in June and July to replenish stocks.
“The concern is that this export momentum of palm oil to India to take advantage of the reopening of its market may be clipped as any rise in CPO price above the RM2,250 monthly average may lead to the export tax being reinstated, based on the current export duty structure of palm oil in Malaysia.
UOB Kay Hian Research, meanwhile, has a market weight on the plantation sector.
“We reckon that the 18% recovery in CPO prices would have factored in the recovery of crude oil prices, in anticipation of demand recovery from India, as well as Indonesia’s B30 biodiesel programme continuing but at a lower volume.
“With the nil CPO export duty, we reckon that this is a slight positive to the sector as it encourages more exports.
“However, in light of softer demand due to the current situation, this may kill demand if prices go up too high.
“Further upside to CPO price would need to come from substantial improvement in demand or if FFB yield fails to recover in the second half of 2020,”it noted.
Also, the changes in export levies in Indonesia of additional US$5 per tonne and 0% CPO export duty from Malaysia’s CPO prices would be cheaper as compared with Indonesia.
“This would improve Malaysia’s exports to India, which is a price-sensitive country.
“From our channel check, the local CPO price is US$15-US$20 per tonne cheaper than Indonesia,” it added.
UOBKH said most plantation companies under its coverage saw their stock price increase in tandem with the recent CPO price recovery.
“The CPO price has recovered by about 18% since its recent low in May.
“If the CPO price uptrend is sustained into the second half of this year, this could trigger more interest in the plantation sector and we could see share prices trading at higher PE multiples,” it added.
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