瑞银亚太地区农业行业亚洲种植园与贸易商准备恢复201921472页

GlobalResearch14February2019AsiaPlantationandTradersUBSEvidenceLabinside:poisedforrecoveryAfteramulti-yearlull,pricesaresetforanupcycleAfterfalling40%fromthe2014peak,webelieveconditionsareripeforapalmoilpriceupcycleoverthenexttwoyears.Supplygrowthappearssettoslowanddemandgrowthshouldremainrobust,whilethesupplyofalternativevegetableoilsmaytighten.Weatherdisruptioncouldprovidefurtherimpetustoprices.LeveragingUBSEvidenceLab,weforecastcrudepalmoil(CPO)pricestoaverageUS$570/t(RM2,350/t)in2019andUS$620/t(RM2,550/t)in2020,7-16%abovethecurrentspotpriceofUS$535/t.Sharepricesacrossthesectorhavehistoricallyexhibiteda0.89correlationtoCPOpricemovements.FirstResources(FR)isourtopsectorpick.ImprovingfundamentalswithpotentiallytightersupplyWeforecastpalmoildemandgrowthtoexceedsupplygrowthforthefirsttimesince2016.PricesshouldmoveprogressivelyhighertoUS$610/tbyend-2019E,drivenbystrongerbiodieseldemand,potentiallyweakeryieldsinIndonesiainH219andlowersoybeanacreageforthenewUSplantingseason.WeexpectYoYASPcomparisonstoturnpositiveinQ319andgrowabout30%inQ419E.PotentiallytightersupplyforalternativevegetableoilslikesoybeanoilshouldlendsupporttoCPOprices:cropprices,afarmers'surveyandourcheckssuggestsoybeanacreagewilllikelyfallintheUSafterthreerelentlessyearsofincreases.WeexpectChina'shogbreedingindustrytoconsolidate,whichshouldreducedemandforsoybeanmeal.BiodieselfeedstockmarketshareshouldriseThecaseforhigherpalmoilmarketshareasabiodieselfeedstockisstrong,helpedbyattractiveeconomicsandhigherbiodieselmandatesinpalmoilproducingcountries.LogisticalbottlenecksforsuccessfulbiodieselmandateimplementationinIndonesiahaveeasedwhileapotentialrecoveryincrudeoilpricesprovidesfurtherroomforhigherCPOpriceswithoutcripplingbiodieseldemand.Europeisademandriskgiventheperceptionofpalmoil'senvironmentalimpact,butwebelievesustainably-producedpalmoilhasaroletoplayintheEU'scarbonemissionreductionobjectives.BuyFirstResources,SimeDarbyPlantationandWilmarWemostlylowerour2019EPSestimates,butraiseour2020estimatesslightlyonourhigherCPOpriceforecasts,resultinginhigherpricetargets.Wepreferupstream-focusedcompaniesgiventheirhigherearningsleveragetopalmoilpricemovements(welikeFRandSimeDarbyPlantation).Inthedownstreamspace,welikeWilmarforitshealthyoperationaltrendsandattractivevaluation.Figure1:UBSAsiaPlantationcoveragesummaryCompanyReuters’MktcapUBSratingPricetarget(LC)SharePE(x)EV/EBITDA(x)ROE(%)P/B(x)Div.yieldNamecode(US$m)NewOldNewOldprice(LC)2019E2020E2019E2020E2019E2019E2019EWilmarWLIL.SI15,289BuyBuy3.803.603.2511.69.910.09.17.81.22.5%GoldenAgriGAGR.SI2,443NeutralNeutral0.270.270.2649.733.89.98.81.20.81.0%FirstResourcesFRLD.SI2,010BuyBuy2.051.901.7215.112.47.76.513.72.01.7%SDPlantationSIPL.KL8,595BuyBuy6.105.955.1434.627.915.714.17.22.51.7%IOICorpIOIB.KL7,015NeutralNeutral4.804.704.5426.724.416.815.511.53.02.3%KLKepongKLKK.KL6,496NeutralNeutral26.0026.0024.7226.722.414.212.38.32.22.1%Abovedataasof13February2019.Source:ThomsonReuters,UBSestimatesEquitiesAsiaPacificEx.JapanAgricultureJianBoGan,[e-mail][phone]CherylLee,[e-mail][phone]StevenFisher,[e-mail][phone]AsiaPlantationandTraders14February20192ContentsOURTHESISINPICTURES....................................................................4PLANTERSATAGLANCE....................................................................5PIVOTALQUESTIONS...........................................................................6Q:Willpalmoilpricesrisein2019-20?........................................................6Q:Willpalmoil'smarketshareasabiodieselfeedstockincreasein2019-20?..................................................................................................................14Q:Willproductiongrowthofalternativevegetableoilsdeceleratein2019-20?............................................................................................................23PALMOILSUPPLYANDDEMANDMODEL.........................................30PALMOILMONTHLYDATAANDWHATTHEYMEAN.......................32WHAT'SPRICEDIN?..........................................................................33UBSEVIDENCELABCPOPRICEMODEL.............................................40Companypages..............................................................................41FirstResources...........................................................................................42SimeDarbyPlantationBerhad....................................................................46WilmarInternational..................................................................................