We attended the three-day Palm and Lauric Oils Conference 2018 (POC2018), organized by Bursa Malaysia. Turnout was relatively stable at about 1,515 participants including 23 prominent speakers. In general, the CPO price outlooks given by industry experts were generally flat at current level after seeing a strong CPO price performance last year. Industry price forecasts range from RM2,200–2,700/mt, while our CPO price forecast is RM2,500/mt. Apart from the CPO price outlook, other popular discussions include the proposal of banning palm oil as biodiesel effective 2021 and the recent import duty hike in India, which could dampen Malaysia’s efforts in pushing for more CPO sales with the temporary suspension of export duty. At the point of writing, CPO futures slipped 1.3% to RM2,459/mt. We retain our Neutral call. Our only top picks for the sector are Genting Plantations and Ta Ann.

• Consensus forecasts average at around RM2500/mt. Generally, most industry experts had a moderate view on 2018 price outlook as they expect the recovery in Malaysia and Indonesia’s production and the strength in Malaysian Ringgit to put downward pressure on CPO price. However, CPO price is likely to be supported by the larger Indonesian biodiesel mandate due to the narrower gap between local palm methyl ester (biodiesel) and gasoil prices as well as a pick-up in demand in the near-term ahead of the Ramadan period in mid-May. Hence, CPO price is unlikely to experience a sharp correction. This palm oil event also saw mixed views represented by the three most prominent industry experts, Dorab Mistry, James Fry and Thomas Mielke. Dorab Mistry has the most bullish call as he sees CPO price could potentially touch as high as RM2,700/mt while Dr. James Fry’s view of RM2,200/mt is the lowest. Thomas Mielke has a wide range forecasts as he foresees in the range of RM2,350-2,700/mt.

• Major wildcards. Argentina’s soybean disruption due to severe drought could see a drastic decline in production by at least 13m mt or 23%, resulting in a total decline of 9m mt for the global soybean production this year. Another drawback is the bigger biodiesel mandate that can be funded in Indonesia due to the narrower gap between the cost of local biodiesel and gasoil (down from USD400/mt to current USD200/mt).

• Maintain Neutral. We are keeping our Neutral outlook on the plantation sector with an unchanged average CPO price forecast of RM2,500/mt for 2018. We like Genting Plantations and Ta Ann for their i) pure plantation upstream focus, ii) decent FFB production, iii) young age profile.

Source: PublicInvest Research - 8 Mar 2018