• Top Pick in Indonesia is PP London Sumatra Indonesia (LSIP), while Malaysia picks remain a mix of pure and integrated planters – SD Guthrie (SDG), IOI Corp, Johor Plantations (JPG), and Sarawak Oil Palms (SOP). Indonesia’s change in CPO and refined palm oil export tax policy from a graduated scale to a flat 7.5% and 4.5% is expected to benefit all planters in Indonesia and make Indonesia more competitive than Malaysia. Overall, we remain NEUTRAL on the sector.

• No more graduated export tax rates for CPO. The Indonesian Government has, with effect from 21 Sep 2024, abolished export tax rates based on a graduated scale, and put into place a fixed 7.5% export tax rate for CPO, to increase the competitiveness of palm oil prices in Indonesia and provide added value to the price of FFB at the farmer level. Prior to this change, Indonesia had imposed a levy of between USD55 to USD240/tonne for CPO exports, depending on a set of price brackets for the monthly reference price. The export tax rates for refined palm oil products and biodiesel are now also at flat rates of 4.5% and 3%.

• With this change, Indonesia pure planters will be able to benefit from higher effective CPO prices… As an example (excluding all other costs), at MYR4,000/tonne, a CPO exporter in Indonesia will now receive MYR3,371/tonne (vs MYR3,248/tonne previously).

• …While the edge that downstream refiners in Indonesia have would widen further, and Malaysia’s competitiveness for downstream products would decrease. Using the same example, the advantage downstream refiners would have in Indonesia – at a CPO price of MYR4,000/tonne – should increase to USD84/tonne (from USD79/tonne and vs Malaysia’s tax advantage of USD72/tonne).

• In general, all Indonesia planters should benefit from this change in tax structure, given the higher effective CPO prices achievable with the lower export duties, and the wider tax advantage downstream planters would have. This, together with the revision in Domestic Market Obligation or DMO ceiling prices by 12% to IDR15,700/litre (from IDR14,000) in mid-August would help Indonesia planters record higher effective ASP’s. The estimated increase in effective CPO price ranges MYR20-137/tonne, based on a CPO price range of MYR3,000-4,500/tonne (Figures 3 and 4). For 2025, based on our estimated MYR3,800/tonne CPO price assumption, this change would improve earnings of the Indonesia and SGX-listed planters by MYR116/tonne. Hence, the earnings impact is likely to be in the range of 6- 12% pa, depending on forward sales strategies and percentage of local sales.

• Still NEUTRAL on sector. We make no changes to our earnings forecasts, for now. Our Top Pick in Indonesia is LSIP while, in Malaysia, we continue to like stocks like SDG, IOI Corp, JPG, and SOP.

Source: RHB Securities Research - 23 Sept 2024