11.04.2018 (New Straits Times Online) - KUALA LUMPUR: Malaysia’s palm oil stockpile dropped by six per cent decline to 2.32 million tonnes last month.

Kenanga Research said this was less than the market’s anticipated nine per cent drop to 2.27 million tonnes but above its 2.50 million tonnes forecast as Indian demand surged 26 per cent to 395,000 tonnes in anticipation of tax regime changes.

“Production improved 17 per cent to 1.57 million tonnes, in line with our estimate 1.57 million tonnes and higher than consensus’ 1.49 million tonnes. Exports as a whole also rose 19 per cent to 1.57 million tonnes, meeting consensus 1.57 million tonnes and exceeding our expected 1.35 million tonnes due to strong Indian demand.”

Kenanga Research expects continued production uptrend at seven per cent to 1.68 million tonnes on continued recovery in Peninsular Malaysia and Sabah.

Meanwhile, exports should slow at seven per cent to 1.45 million tonnes as the firm believes restocking activity had largely taken place, while Indian demand should normalise going forward.

Overall, April 2018 stocks should increase two per cent to 2.38 million tonnes as supply at 1.73 million tonnes exceeds demand of 1.68 million tonnes, it added.

“Accordingly, we anticipate minor price weakness on the cards due to lower upside risk as we narrow our short-term CPO trading range to RM2,250-2,500 per tonne (from RM2,200-2,500 per tonne) on unchanged CPO-soybean oil discount of US$60 per tonne and CPO-gasoil premium of US$100 per tonne.

“Our FY18 forecast is unchanged at RM2,400 per tonne,’ Kenanga Research said, adding that it remained “neutral” on the sector in anticipation of potential demand and price volatility from protectionist actions.”

The firm preferred defensive options such as its top pick PPB Group Bhd at the target price of RM22.60 with its strong exposure to the consumer sector and undemanding price-to-book value (PBV) valuation of 1.0 times, against Wilmar International Ltd’s 1.3 times PBV