· Courtesy to stronger exports (+13.2% m-o-m) and crawling production growth (+3.0%), inventory unexpectedly fell 5.7% to 1.33m MT. Meanwhile, imports and disappearance numbers remained stable.
· July production posted a small m-o-m gain of 3.0% to 1.49m MT, still 4.5% yoy lower than 1.56m MT in July 08. YTD production of 9.41m MT is 3.6% below 7M08, with the shortfall mainly from Sabah (7M09: 2.81m MT vs 7M08: 3.16m MT). Production in Peninsular Malaysia was relatively flat (7M09: 5.60m MT vs 7M08: 5.64m MT) while Sarawak’s production was ahead of the pack (7M09: 0.99m MT vs 7M08: 0.95m MT).
· M-o-M exports surprised with a 13.2% mom jump to 1.45m MT, underpinned by strong uptake from China (+29.3%), India (+58.8%) and Pakistan (+66.2%). Both India and Pakistan defied expectations that vegetable oils’ imports should taper-off on high inventories accumulated. We reckon that traders could decide to retain the high stock levels due to dry Indian weather which could threaten crops supply.
· CPO price correction short-lived. Though we correctly forecasted the price weakness on the back of production recovery and inventory rise, CPO price however had since rebounded from the recent low of RM2002/MT to the current RM2400/MT, riding on the rise of crude oil and other commodities as global economic recovery gained pace. We expect near term CPO price to stay firm in tandem with commodities’ prices.
· Maintain neutral on the sector as plantation stocks under our coverage are already fully valued. Our 2009 CPO price forecast of RM2000-2200/MT remain unchanged. Our recommendations are: IOI (Trading Sell; TP:RM4.60), KLK (Trading Sell; TP:RM11.10) and Sime (Trading Sell; TP;RM6.20).
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