PROSPECTS FOR PLANTATION ISSUERS : TWO POLICIES AS POSITIVE CATALYSTS
29 November 2018
Panin Sekuritas analyst Cheria Widjaja said that in the short term, the shares of palm oil issuers received positive sentiment from the easing of export tariffs. The levy will be eliminated if the global price is below US$500 per ton.
“The removal of export tariffs is indeed positive for palm oil issuers. However, this is not yet significant for global prices, because there is still a lot of supply, while demand is not too high,” he said when contacted by Bisnis, Tuesday (27/11).
At the close of trading on Tuesday (27/11), the Plantation Index (JAKAGRI) rose 0.34% to 1,446.10. The five main stocks that pushed it were PT Andira Agro Tbk (ANDI) with an increase of 9.36%, PT Dharma Satya Nusantara Tbk (DSNG) 3.73%, PT BISI International Tbk (BISI) 2.29%, PT Sampoerna Agro Tbk (SGRO) 0.86%, and PT Mahkota Group Tbk (MGRO) 1.71%.
Meanwhile, the price of CPO on Bursa Malaysia for the February 2019 contract fell 0.51% to 1,962 ringgit (US$468.40) per ton. This is a new low in 2018 and shows a 26.29% weakening year-to-date (ytd).
According to Cheria, the CPO supply surplus condition also happens to other vegetable oils, such as soybean oil due to the US and China trade war. Each vegetable oil product affects each other, so the current market conditions tend to be negative.
In 2019, CPO market conditions are expected to improve in line with the increasing absorption of CPO for the B20 program. Demand volume will increase to 6 million kilo liters from this year's 2 million kilo liters.
However, the supply surplus is expected to still overshadow so that the 2019 CPO price is estimated to be around 2,300 ringgit per ton. Shares that are quite attractive are PT PP London Sumatra Indonesia Tbk. (LSIP) with a target price of IDR 1,310, PT Astra Agro Lestari Tbk. (AALI) IDR 12,400, PT Salim Ivomas Pratama Tbk. (SIMP) IDR 550, SGRO IDR 2,350, and MGRO IDR 640. “We estimate that LSIP shares are the most attractive,” he added.
LSIP is a company that focuses on the upstream industry by maximizing internal plantations. Thus, any increase in CPO prices will be directly reflected in increased revenue.
Danareksa Sekuritas analyst Yudha Gautama said that the sentiment of CPO export tax relief has not significantly boosted the share prices of related issuers. The reason is, this policy is still being studied by market players.
Meanwhile, the price decline that occurred in the fourth quarter of 2018 could suppress the financial performance of plantation issuers. Although there is an opportunity for CPO sales volume to increase, the price factor is very influential.
“Commodity issuers such as plantations are greatly affected by prices. If CPO is down, revenue and profit are also depressed. Hopefully 2019 can be better,” he added.
In 2019, it is estimated that CPO prices could improve towards the range of 2,550 ringgit per ton. Previously, Danareka estimated the 2018 CPO price at 2,700 ringgit per ton, but the realization was below that.
The sentiment driving prices is increased demand from the implementation of the B20 program. In addition, the beginning of the year is a low harvest period (low corp), so that the volume of inventory can be further reduced.
“If it's a low corp, hopefully the inventory can go down. Usually, market players do consider inventory levels more to predict the CPO market,” he said.
According to Yudha, the most attractive CPO stocks in 2019 are AALI and LSIP with target prices of IDR 16,300 and IDR 2,000 respectively. Furthermore, SGRO is also quite prospective with a target of IDR 3,000.
In his report, Maybank Kim Eng senior analyst Ong Chee Ting said that the reduction of CPO export tax in Indonesia provides positive sentiment, especially for players in the upstream industry such as LSIP. Other issuers that can be considered are AALI and DSNG.
Editor : Riendy Astria