PETALING JAYA: Upstream oil palm planters and integrated plantation companies with operations in Indonesia are poised to be prime beneficiaries of the republic’s proposal to reduce its palm oil export levies.
Analysts said that overall, these players will get to enjoy higher net receipts from the potential imposition of lower export levies.
Maybank Investment Bank (Maybank IB), which has a positive call on the plantation sector, said local planters under its coverage such as TSH Resources Bhd, Genting Plantations Bhd, Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd (pic below) are potential beneficiaries, given their sizeable exposure in Indonesia.
Other international planters like First Resources Ltd, Bumitama Agri Ltd and Wilmar International Ltd are also slated to benefit from the proposed revision in export levies.
According to recent media reports, Indonesia’s Finance Ministry is expected to soon cut the ceiling rate for crude palm oil (CPO) levies from US$255 (RM1, 062) per tonne to US$175 (RM729) per tonne.
However, it is not clear when the new proposal will be approved and implemented.
Based on its estimate, Maybank IB in its latest regional plantation report said the proposed export tax will raise the net increment receipts of upstream planters by US$5-US$80 (RM20.80-RM333.30) per tonne and integrated planters by US$5-US$72 (RM20.80-RM299.90) per tonne when the CPO price trades between US$695 (RM2, 895) and US$1, 020 (RM4, 249) per tonne.
For instance, at the present CPO price of about RM3, 560 per tonne, the incremental net receipt is estimated at US$50 (RM208) per tonne, a 7.4% increment to existing revenue.
However, based on its average CPO price assumption of RM3, 100 per tonne for 2021, the revenue increments will be smaller at US$30 (RM124) per tonne or 4.5%.
The research house said, “As for our 2022 CPO average selling price forecast of RM2, 600 per tonne, there will be no impact to revenue or profitability.”
Meanwhile, Public Investment Bank (PIVB) Research in its latest report said buying interest on palm oil has slowed down ahead of the potential drastic cut of US$255 (RM1, 062) per tonne on the export levy.
It added that “various sources have cited that buying interest for palm oil has seen a sharp reduction in Asian markets since end-May as buyers stay on the sidelines ahead of the potential cuts in Indonesia’s export levy in the coming weeks”.
Since December, Indonesia has applied progressive export levies on palm oil exports.
The export levy currently being charged is US$255 (RM1, 062) per tonne as CPO prices are trading at record highs.
This export levy is on top of the country’s export tax, which is also set to increase with the CPO price and is currently fixed at US$44 (RM183) per tonne.
PIVB pointed out that this “unfavourable” tax move has expanded the gap between Indonesian and Malaysian CPO prices to US$309 (RM1, 287) per tonne, leaving the upstream Indonesian players in a less competitive playing field.
On the local front, PIVB said, “There is disparity between the CPO price movement and the plantation counters’ share prices.”
Despite the rally in CPO prices, most plantation stock prices remain muted and “we attribute this to market anticipation that the current high CPO prices are not sustainable and could weaken in the near term.
“We also think environmental, social and governance-related concerns play a role, resulting in lower interest and valuation for the plantation sector, ” added the research house.
PIVB also expects CPO prices to retrace to RM3, 000-RM3, 500 per tonne in the second half of this year after hitting a record-high of RM4, 788 per tonne in the middle of May. Year-to-date, the CPO price has averaged at RM4, 100 per tonne, a staggering increase compared with RM2, 488 per tonne in the same period last year.