The Malaysian Palm Oil Board (MPOB) reported a significant increase in crude palm oil (CPO) stockpiles, hitting an eight-month high of 2.01 million tonnes (mt) by the end of September 2024. This rise is attributed to a sharp decline in domestic consumption, which saw a staggering 37% month-on-month drop to just 0.15mt. The report suggests that Malaysia's CPO production may have peaked in August, prompting analysts to closely monitor Indonesia's output, expected to peak in the fourth quarter of 2024. A strong recovery in Indonesia's CPO production could lead to downward pressure on CPO prices, which currently trade at an unsustainable premium compared to other vegetable oils.
Maybank Investment Bank Bhd has maintained a NEUTRAL stance on the sector, with BUY recommendations for SD Guthrie (SDG), Sarawak Oil Palms (SOP), Ta Ann (TAH), and Bumitama Agri (BAL).
The MPOB's figures surpassed market expectations, with September's stockpile exceeding the anticipated 1.95mt. The increase was driven by a combination of high output, recorded at 1.82mt, and a decrease in domestic consumption, alongside a modest rise in exports, which reached 1.54mt. Imports fell sharply to a mere 0.005mt as high domestic CPO prices in Indonesia deterred Malaysian refiners. Preliminary export estimates for October indicate a promising start, with independent cargo surveyors reporting shipments of approximately 490,582 tonnes, representing a 19% month-on-month increase.
CPO prices have surprised many in the market, remaining strong due to tight supply conditions, especially in Indonesia. However, with expectations of increased production in Indonesia, there is concern that the current pricing trends may not be sustainable. Notably, CPO is trading at a premium over other oils such as soyoils and sunflower oils, which may lead to reduced competitiveness in the market. RHB Investment Bank Bhd has reiterated a NEUTRAL outlook for the sector, while identifying Johor Plantations Group (JPG), Sarawak Oil Palms (SOP), SD Guthrie (SDG), and London Sumatra Indonesia (LSIP) as new top picks.
Weather disruptions have also played a role in shaping the market landscape, with wet weather reported across key producing regions, impacting harvesting and transportation. The forecast of continued La Niña conditions raises concerns about further disruptions, which could influence both supply levels and pricing dynamics. As a result, MIDF Amanah Investment Bank Bhd has also maintained a NEUTRAL stance, projecting average CPO prices of RM4,000 per tonne, while highlighting the importance of weather patterns in shaping future price movements. The report emphasises the potential for continued elevated CPO prices, albeit coupled with a warning of demand rationing as CPO becomes less attractive compared to other oils.
The stocks mentioned in the reports are:
Buy Recommendations
| Company Name | Ticker | Current Price (RM) | Target Price (RM) |
|---|---|---|---|
| SD Guthrie | SDG | 4.64 | 5.20 |
| Swk Oil Palms | SOP | 3.19 | 4.10 |
| Ta Ann | TAH | 4.03 | 4.03 |
| Bumitama Agri | BAL | 0.745 | 0.78 |
| IOI Corp | – | 3.74 | 4.50 |
| Johor Plantations Group | – | 1.20 | 1.20 |
| Kuala Lumpur Kepong | – | 25.40 | 25.40 |
| PP London Sumatra Indonesia | – | 1,130 IDR | 1,130 IDR |
| Sarawak Oil Palms | – | 3.60 | 3.60 |
| SD Guthrie | – | 5.35 | 5.35 |
Neutral Recommendations
| Company Name | Ticker | Current Price (RM) | Target Price (RM) |
|---|---|---|---|
| Astra Agro Lestari | – | 5,460 IDR | 5,460 IDR |
| Bumitama Agri | BAL | 0.70 SGD | 0.70 SGD |
| FGV Holdings | – | 1.30 | 1.30 |
| First Resources | – | 1.45 SGD | 1.45 SGD |
| Golden Agri | – | 0.25 SGD | 0.25 SGD |
| Ta Ann | TAH | 3.60 | 3.60 |
| TSH Resources | – | 1.10 | 1.10 |
| Wilmar International | – | 3.10 SGD | 3.10 SGD |
