MPOB released stats for palm oil Feb 2012

What’s New

Malaysian Palm Oil Board (MPOB) has released palm oil statistics for February 2012.

Comment:

CPO production declined 7.93% m-o-m in February but grew 8.3% y-o-y. CPO production has eased for four consecutive months which is beyond our expectation. We believe the lower CPO production in February was due to the lag effect of heavy rainfall in 2H 2011. We expect lower CPO production to support CPO price in March.
Palm oil closing stocks increased 2.02% m-o-m, and 39% y-o-y. Palm oil closing stockpiles have maintained above 2mil tonnes for 6 months. We expect palm oil closing stocks to decrease below 2mil tones in March.
Palm oil export decreased 12.58% m-o-m but increased 8.63% y-o-y. Decrease of export resulted in higher stockpiles in February. We believe lower export was mainly due to the reduction of Indonesia export duties. Export to Pakistan which is one of the main importers of palm oil decreased 69.7% m-o-m following the country had signed Preferential Trade Agreement approved in September resulted in reduction of 15% duty on CPO import from Indonesia. Palm oil export to Europe also decreased 33.33% m-o-m. We believe it is because of softer demand caused by European debt crisis and stiff price competition from Indonesia. However, exports to China and India remain resilient where export to China increased 39% m-o-m and export to India increased 2.6% m-o-m. Moving forward, we expect palm oil export to continue decrease in March mainly due to competition from Indonesia which is relatively lower price as compared to Malaysia.
Normalized soybean production in 2H2012. Southern Oscillation Index reading has declined to 2.5 in February 2012, indicating risk of persisting dry weather in America and Argentina is lifted. We expect soybean production in Argentina and America to be normalized in 2H2012, hence soften CPO price.
Average CPO price in February was RM3142/tonne, declined 1.01% m-o-m as compared to average CPO price of RM3174/tonne in January. Moving forward, we expect CPO price to hover between RM3000-3500 in March mainly due to lower CPO production in February.
No change to our CPO price assumption of RM3070 for this year. During the Palm and Lauric Oils Conference & Exhibition (POC) held in KL recently, industry consultants projected CPO price for 2012 will be ranging from RM3,000 to RM3,450/tonne which is in line with our expectations.

Valuation & Recommendation:

Our top picks are IOI Corporation (Target price: RM5.95) because of its undemanding valuation and IJM Plantations (TP: RM3.75) for its bullish long term prospect once the Indonesia estates start to contribute. We rate HOLD for Kuala Lumpur Kepong (TP: RM24.15). Meanwhile, we have SELL for Genting Plantations (TP: RM8.14) due to its rich valuation.