Malaysia's palm oil inventories for Oct fell 6.4% MoM to below the 2m mt level, thanks to the robust exports while production experienced an unusual decline. The tighter inventory level pushed the CPO futures to the highest level since June 2022. At the point of writing, CPO futures jumped RM51/mt to RM5,152/mt. YTD, averaging at RM4,087/mt. In view of the stronger-than-expected CPO performance, we are currently reviewing our CPO price forecast. Maintain Neutral on the sector. Our top picks are Sarawak Plantation and Ta Ann.

• Inventory snapped three-month gains. Palm oil inventories dropped 6.4% MoM and 23% YoY to 1.88m mt, the first decline in three months. It is also the sharpest monthly loss since March 2024. Meanwhile, stock-to-usage ratio slipped from 9.2% to 8.1% as exports grew while production softened.
• Highest export level since July 2020. CPO exports registered a second straight monthly gain, up 12.3% to 1.73m mt, boosted by stronger demand from China (+10.6%), EU (+16.5%), India (+55.8%) and the Middle East (+7.9%), partially offset by weaker exports to the US (-35.5%). India's palm oil imports surged to a three-month high as refiners boosted purchases to replenish stocks depleted by lower-than-usual imports in recent months and robust festive demand.
• Production has peaked in Aug. CPO production fell for a second straight month, down 1.4% MoM to 1.79m mt, as weaker production from Peninsular Malaysia production (-5.4%) was partially offset by stronger East Malaysia production (+3.9%). It is worth noting that almost all states except Sabah and Terengganu have reported a decline in production since Aug, which is an unusual phenomenon. We believe the oil palm trees are currently suffering from biological stress due to the lagged effect of El Nino.
• Anticipating better quarterly results in 3Q 2024. Despite seeing mixed production report from the 6 plantation companies under our coverage, we expect better results in the upcoming quarter, led by stronger CPO prices and lower production cost on the back of lower fertilizer cost and higher OER. During the quarter, MPOB CPO price averaged at RM4,000/mt (YoY: +5.2%, QoQ: -0.9%). Amongst the companies under our coverage, only IOI Corp (+2.5%), Sarawak Plantation (+3.7%) and Ta Ann (+2.7%) registered better FFB production growth on a YoY basis.

Source: PublicInvest Research - 12 Nov 2024