Plantation counters shine with export tax suspension


Plantation counters have risen as much as 13% in value since the government announced the suspension on export taxes for crude palm oil (CPO), as the country seeks to cut inventories and protect the interest of over 600,000 smallholders.

Plantation companies’ share prices have been under pressure in the last 12 months.

But the government has injected a much needed rush for the sector. Export taxes for CPO have been suspended for three months, starting Jan 8 this year.

Palm oil inventories surged to a more than two-year high to 2.7 million tonnes at the end of 2017 as production outpaced exports.

Stockpiles in the country rose 7% in the previous month to the highest level since November 2015, according to Malaysian Palm Oil Board (MPOB) data.

Inventories were also at the highest year-end level since at least 2000, following a sixth consecutive month of gains.

The tax announcement by the government is expected to spur demand and boost prices, which have been recovering from a 16-month low.

The action by the world’s second-largest palm oil producer is seen as a “pre-emptive, short-term measure” despite the government forecast to lose millions in tax revenues.

CIMB Investment Bank Bhd analyst Ivy Ng in a recent note said the temporary removal will benefit planters with significant upstream operations including Felda Global Ventures Holdings Bhd (FGVH), Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.

Since the tax exemption announcement, the Plantation Index climbed a staggering 50.19 points to close at 8,137.82 last Friday.

A quick check on Bloomberg showed that seven counters increased between 2% and 13%, with FGVH topping the chart.

Analysts reckoned that FGVH, backed by other related developments, will benefit from the temporary tax exemption.

FGVH rose 5.4% last Friday from the previous close, almost 17 times the country’s benchmark index.

The shares increased to RM2.15 from RM2.04 and trading volume was 3.5 times the 20-day average.

Kretam Holdings Bhd’s share prices rose 9.89%, followed by Pinehill Pacific Bhd that had gained 9.09% since the announcement.

Kretam increased 5.1% from 58 sen to 61 sen on Jan 12, 2018 — 16 times the country’s benchmark index.

Pinehill advanced 20% last Friday, the most in two years, closing at 24 sen from 20 sen in the previous session.

Other plantation stocks that saw almost similar gains were Sin Heng Chan (Malaya) Bhd (5%), Cepatwawasan Group Bhd (4.22%), TDM Bhd (3%) and Sarawak Oil Palms Bhd (2.79%).

According to MPOB, Malaysia currently accounts for 39% of the world palm oil production and 44% of world exports.

MIDF Research in its latest plantation report said the temporary suspension of palm oil export tax was introduced to curb the fall in CPO prices.

The government is expected to impose the export tax, once inventories fall to 1.6 million tonnes.

“The measure will help to ensure that the smallholders’ income is supported and also ensure the competitiveness of the oil palm industry.

“The news is positive to the CPO price, as lower inventory usually leads to higher CPO price. We also believe that major consumers such as India and China will take this opportunity to buy more palm oil from Malaysia,” the report said.

MIDF maintained a ‘Positive’ view on the sector and kept its palm oil price forecast of RM2,900 per tonne for 2018.

Meanwhile, Kenanga Research believes that the stocks would unlikely shine due to the tax suspension.

“While the market response has been positive, we have yet to see a strong positive price impact in recent days — as this coincided with continued strengthening of the ringgit to US dollar/RM4 as of Jan 10, 2018, from US dollar/RM4.05 as of end-2017,” it said.

The research house added that while the announcement may spur demand in price-sensitive markets such as India, Pakistan and China, it is balanced by a recovering production outlook and strengthening ringgit.

“Thus rendering the net price effect likely flattish and potentially negative towards the end of the suspension period during the first leg of 2018 production uptrend,” Kenanga said.

In terms of palm oil price on Jan 12, 2018, palm oil for March delivery closed 1.2% lower at RM2,536 per tonne on Bursa Malaysia Derivatives Exchange, declining for the second day, according to Bloomberg.