MARKET DEVELOPMENT
Kenanga Research Expects Higher CPO Exports
Kenanga Research Expects Higher CPO Exports
21/07/2015 (The Sun) - Malaysian exports are due to benefit from the start of Indonesia 's collection of crude palm oil (CPO) and processed palm oil levies from July 16, Kenanga Research opined, with expected lesser supply coming out of Indonesia.
Kenanga Research expects the Indonesian levy to boost up Malaysian exports in the latter half of July, with an upward revision forecast to 1.71 million metric tonnes from 1.68 million metric tonnes.
"Accordingly, we also lower our July 15 closing inventory forecast to 2.13 million metric tonnes from 2.18 million metric tonnes.
Kenanga Research opined that the key beneficiary from this measure is the Indonesian downstream industry, where PPB's associate Wilmar operates 25 refineries and 9 biodiesel plants as of 2014.
Higher export tax rates generally translate to better margins for refiners due to better bargaining power against upstream producers, said the research house.
"Hence, we think the news could lead to recurring interest in PPB which share price has been stagnating in the last few months while the levy implementation was delayed," it noted.
While Kenanga Research is of the view that the levy to help boost Malaysian CPO exports, it expects minimal near term inventory impact post revised estimates due to rising production.
"In the short-term, we expect the move to favour planters with Indonesian refining operations, chiefly PPB due to its 18% stake in Wilmar," it said.
Given minimal inventory as well as neutral long-term price impact, Kenanga Research has reiterated a "neutral" call on the plantation sector, with an unchanged FY15-16 CPO price targets of RM2,200 to RM2,400 per metric tonne.
Based on Kenanga Research's channel checks, the Indonesian authorities have started collecting the US$50 per metric tonne CPO levy and US$30 (RM114.10) per metric tonne processed palm oil levy.
"We are neutral on the CPO price impact as the levy has long been anticipated by the market since it was introduced in May this year," it said.
Based on latest CPO prices at about US$575, the US$50 per metric tonne CPO levy implies taxation of 8.7%, compared with 0% tax previously.
Kenanga Research expects the Indonesian levy to boost up Malaysian exports in the latter half of July, with an upward revision forecast to 1.71 million metric tonnes from 1.68 million metric tonnes.
"Accordingly, we also lower our July 15 closing inventory forecast to 2.13 million metric tonnes from 2.18 million metric tonnes.
Kenanga Research opined that the key beneficiary from this measure is the Indonesian downstream industry, where PPB's associate Wilmar operates 25 refineries and 9 biodiesel plants as of 2014.
Higher export tax rates generally translate to better margins for refiners due to better bargaining power against upstream producers, said the research house.
"Hence, we think the news could lead to recurring interest in PPB which share price has been stagnating in the last few months while the levy implementation was delayed," it noted.
While Kenanga Research is of the view that the levy to help boost Malaysian CPO exports, it expects minimal near term inventory impact post revised estimates due to rising production.
"In the short-term, we expect the move to favour planters with Indonesian refining operations, chiefly PPB due to its 18% stake in Wilmar," it said.
Given minimal inventory as well as neutral long-term price impact, Kenanga Research has reiterated a "neutral" call on the plantation sector, with an unchanged FY15-16 CPO price targets of RM2,200 to RM2,400 per metric tonne.
Based on Kenanga Research's channel checks, the Indonesian authorities have started collecting the US$50 per metric tonne CPO levy and US$30 (RM114.10) per metric tonne processed palm oil levy.
"We are neutral on the CPO price impact as the levy has long been anticipated by the market since it was introduced in May this year," it said.
Based on latest CPO prices at about US$575, the US$50 per metric tonne CPO levy implies taxation of 8.7%, compared with 0% tax previously.