• Top Picks are pure planters Sarawak Oil Palms, Bumitama Agri, and PP London Sumatra Indonesia. As a result of higher MoM output and weaker exports, PO inventory rose to 1.74m tonnes in April. We expect PO inventory to remain below the 2m tonne mark at least until June. As for the upcoming results season, we expect flattish QoQ earnings with mostly in line earnings.

• 1Q24F earnings to be flattish QoQ for Malaysian and Indonesian planters. QoQ FFB output continued to trend down post peak season but should be offset by higher CPO prices during the quarter. In Malaysia, FFB output of the companies under our coverage dipped by an average of 21.6% QoQ, while spot CPO prices rose 9% QoQ to MYR4,006/tonne. In Indonesia, we estimate that 1Q24 FFB output for stocks under our coverage fell by a smaller 16.5% QoQ (based on seasonal trends) while CPO prices – net of taxes – rose 9% QoQ. We believe the smaller decline in output in Indonesia was due to low base effect given the weak output in 4Q23.

• YoY, Indonesian planters should see higher earnings, while Malaysian planters could see flattish numbers. In Malaysia, YoY FFB output trends were mixed, although average output for companies under our coverage ticked up 1.5% YoY in 1Q24, while CPO prices were flattish at -0.3% YoY. In Indonesia, FFB output is estimated to have fallen by a slight 0.7% YoY in 1Q24, but CPO prices net of taxes, rose 5.5% YoY.

• 1Q24F is likely to bring largely in-line earnings, based on our estimates of production levels alone (Figure 1). Two companies may underperform forecasts based on FFB output (FGV Holdings and Golden Agri), while two may chalk results that are stronger than projected – First Resources and Bumitama Agri. We expect seven planters to book numbers that are largely in line.

• For planters with downstream operations in Indonesia, we expect margins to improve slightly QoQ due to a larger tax differential between upstream and downstream products of USD43/tonne (vs USD35 in 3Q23). On YoY basis however, Indonesian margins could weaken in 1Q24 due to the smaller tax differential (from USD71 in 1Q24). Conversely, Malaysian downstream counterparts may see slightly weaker QoQ margins due to the increase in competition from Indonesia.

• Inventory levels rose after five consecutive months of decline to 1.74m tonnes in April (from 1.71m tonnes in March), due to improving production (+8% MoM) and lower exports (-7% MoM). Going forward, we expect stock levels to gradually improve but remain below the 2m-tonne mark at least until June, when the peak season starts in earnest.

• Maintain NEUTRAL with a tactically positive trading strategy, as we continue to advocate for purer planters. Our regional Top Picks remain Sarawak Oil Palms, PP London Sumatra Indonesia, and Bumitama Agri.

Source: RHB Securities Research - 13 May 2024