Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

The benchmark palm oil contract on the Malaysia Bursa closed at a record high of RM4,524/mt at the mid-day close the 12 May. The previous high was in March 2008. That gain in palm oil has moved in tandem with a rally in the vegetable oil complex, which has eked out the sharpest increase of all the agricultural commodities in the past year.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/206/666/original/image_83464541291621222454246.png?1621222454" class="editor-image img-responsive" data-smartkarma-image-id="206666"></figure>
<div style="text-align: left;" class="content-caption">Source: <a href="http://www.fao.org/faostat/en/#data/QD/metadata" target="_blank" rel="noopener">FAO</a>
</div>
<div style="text-align: left;" class="content-caption">Components of the vegetable oils price index: soybean oil, Dutch , fob ex-mill; sun oil, EU, fob NW Eur. port; rape oil, Dutch, fob ex-mill; groundnut oil, any origin, cif Rotterdam; cotton oil, US, PBSY, fob Gulf; coconut oil, Phil./Indo., cif Rotterdam; palmkernel oil, Mal./Indo., cif Rotterdam; palm oil crude, cif NW Eur. port; linseed oil, any origin, ex-tank, Rotterdam; castor oil, ex-tank Rotterdam.</div>
The gain in palm oil prices is largely underpinned by concerns over slower-than-expected production growth in the key exporting countries (Malaysia and Indonesia), hampered by labour shortages, in conjunction with strong global import purchases.
Yet while palm oil has enjoyed a meteoric price rise, the performance of listed palm oil plays has bifurcated. 
Is this rally sustainable and why are markets not moving more in sync?  Or is ESG becoming a more pressing issue? 
More below the fold. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/206/657/original/image?1621220074" class="editor-image img-responsive" data-smartkarma-image-id="206657"></figure>

 The benchmark palm oil contract on the Malaysia Bursa closed at a record high of RM4,524/mt at the mid-day close the 12 May. The previous high was in March 2008. That gain in palm oil has moved in tandem with a rally in the vegetable oil complex, which has eked out the sharpest increase of all the agricultural commodities in the past year.

Source: FAO

Components of the vegetable oils price index: soybean oil, Dutch , fob ex-mill; sun oil, EU, fob NW Eur. port; rape oil, Dutch, fob ex-mill; groundnut oil, any origin, cif Rotterdam; cotton oil, US, PBSY, fob Gulf; coconut oil, Phil./Indo., cif Rotterdam; palmkernel oil, Mal./Indo., cif Rotterdam; palm oil crude, cif NW Eur. port; linseed oil, any origin, ex-tank, Rotterdam; castor oil, ex-tank Rotterdam.
The gain in palm oil prices is largely underpinned by concerns over slower-than-expected production growth in the key exporting countries (Malaysia and Indonesia), hampered by labour shortages, in conjunction with strong global import purchases.
Yet while palm oil has enjoyed a meteoric price rise, the performance of listed palm oil plays has bifurcated. 
Is this rally sustainable and why are markets not moving more in sync?  Or is ESG becoming a more pressing issue? 
More below the fold. 


Powering Palm Oil: Record Prices Amid Vegetable Oil Complex Rally

Over 25-yrs in Global Materials & Soft Commodities

Charles Spencer

Alpha Factors

INVESTMENT CONCLUSION: An improved outlook for CPO pricing should support the shares into the S$0.30s.  Pricing expectations have improved as a result of strong biodiesel demand outstripping low production.  CPO prices have jumped 33% from June, yet <a href="https://www.smartkarma.com/entities/golden-agri-resources-ltd" target="_blank" data-smartkarma-citation="entities:1142:1" rel="noopener">Golden Agri Resources (GGR SP)</a> shares are down 20% in the same period.

INVESTMENT CONCLUSION: An improved outlook for CPO pricing should support the shares into the S$0.30s.  Pricing expectations have improved as a result of strong biodiesel demand outstripping low production.  CPO prices have jumped 33% from June, yet Golden Agri Resources (GGR SP) shares are down 20% in the same period. 

Golden Agri: Pricing Up / Stock Down:  Trading Buy

INVESTMENT CONCLUSION: We recommend avoiding shares linked to the Indonesian plantation sector, like <a href="https://www.smartkarma.com/entities/golden-agri-resources-ltd" target="_blank" data-smartkarma-citation="entities:1142:1" rel="noopener">Golden Agri Resources (GGR SP)</a> and <a href="https://www.smartkarma.com/entities/wilmar-international-ltd" target="_blank" data-smartkarma-citation="entities:172:1" rel="noopener">Wilmar International (WIL SP)</a> until the risks associated with a recent spike in transboundary haze passes.  Over the past few days, there has been a sharp deterioration in air pollution throughout Southeast Asia as a result of an escalation of fire clearing activities across Sumatra and Kalimantan.

INVESTMENT CONCLUSION: We recommend avoiding shares linked to the Indonesian plantation sector, like Golden Agri Resources (GGR SP) and Wilmar International (WIL SP) until the risks associated with a recent spike in transboundary haze passes.  Over the past few days, there has been a sharp deterioration in air pollution throughout Southeast Asia as a result of an escalation of fire clearing activities across Sumatra and Kalimantan.  

Golden Agri & Wilmar – Avoid till the Smoke Clears

Eagle High Plantations / Equity Bottom-Up

INVESTMENT CONCLUSION: We recently met with the IR manager of <a href="https://www.smartkarma.com/entities/eagle-high-plantations-tbk-p" target="_blank" data-smartkarma-citation="entities:4421:1" rel="noopener">Eagle High Plantations Tbk P (BWPT IJ).</a> The company’s message called for a return to profitability in 2H19 driven by higher volumes and improved pricing.  For a stock trading near its 5-year low, this could represent an interesting call-option, however, we see deleveraging taking priority ahead of more shareholder-friendly actions like dividends or growing the business for shareholders.  We label this report as 'Bullish' given that our 12-month price target of Rp.140/sh offers 16% upside.  However, for many investors we expect this risk-adjusted potential return to be too low to tempt them off the sidelines at the moment.

INVESTMENT CONCLUSION: We recently met with the IR manager of Eagle High Plantations Tbk P (BWPT IJ). The company’s message called for a return to profitability in 2H19 driven by higher volumes and improved pricing.  For a stock trading near its 5-year low, this could represent an interesting call-option, however, we see deleveraging taking priority ahead of more shareholder-friendly actions like dividends or growing the business for shareholders.  We label this report as 'Bullish' given that our 12-month price target of Rp.140/sh offers 16% upside.  However, for many investors we expect this risk-adjusted potential return to be too low to tempt them off the sidelines at the moment. 

Eagle High Plantations: ‘A Return to Profits’…but Deleveraging to Be Prioritised

INVESTMENT VIEW: The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like <a href="https://www.smartkarma.com/entities/1142" target="_blank" data-smartkarma-citation="entities:1142:1">Golden Agri Resources (GGR SP)</a> (GAR).

INVESTMENT VIEW: The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

Singapore

First Resources is a leading palm oil producer involved in cultivating oil palms, harvesting fresh fruit bunches, and milling them into crude palm oil and palm kernel. The company further processes these into higher-value palm-based products such as biodiesel, refined palm oil, and palm kernel oil. Headquartered in Singapore, the company was founded in 1992.

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First Resources (FR SP)

Powering Palm Oil: Record Prices Amid Vegetable Oil Complex Rally

The gain in palm oil prices is largely underpinned by concerns over slower-than-expected production growth, in conjunction with strong global...

David Blennerhassett

Golden Agri: Pricing Up / Stock Down: Trading Buy

INVESTMENT CONCLUSION: An improved outlook for CPO pricing should support the shares into the S$0.30s. Pricing expectations have improved as a...

Charles Spencer

Golden Agri & Wilmar – Avoid till the Smoke Clears

INVESTMENT CONCLUSION: We recommend avoiding shares linked to the Indonesian plantation sector, like Golden Agri Resources (GGR SP) and Wilmar...

Charles Spencer

Eagle High Plantations: ‘A Return to Profits’…but Deleveraging to Be Prioritised

INVESTMENT CONCLUSION: We recently met with the IR manager of Eagle High Plantations Tbk P (BWPT IJ). The company’s message called for a return to...

Charles Spencer

Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional...

Charles Spencer

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