Palm oil

Palm oil: Maybank-KE recently hosted a briefing by the Palm Oil Refiners Association of Malaysia (PORAM) for over 20 fund managers/analysts.

Key takeaways:
1) PORAM is proposing a review of the Malaysian CPO export tax structure to match that of Indonesia, which came into effect on 15 Jul ‘15. A zero duty variance between Indonesia and Malaysia is preferred although a US$10-15/t (RM44-66) tax differential is still acceptable as Malaysian refiners could compensate importers with quality and timely delivery. Meanwhile, a tax disparity of above US$30 (RM132) is viewed as negative for Malaysian refiners.

2) Some of PORAM members have experienced tighter cash flows when the GST was first imposed in Apr ‘15 as the refund of the GST was longer than anticipated.

3) The association is concerned about the Trans-Pacific Partnership agreement (TPP), which may require Malaysia to remove the current export taxes. While PORAM is in support of seeking market access, it reckons that the TPP will not significantly boost palm oil exports.

Based on Maybank-KE estimates, Malaysian refiners will be at a disadvantage vis-à-vis Indonesian refiners when CPO price is below RM2,250/t as CPO exports out of Malaysia does not attract any export taxes, which will in turn encourage more CPO exports given the better margin.

On a more positive note, the present El Nino threat which has lifted CPO prices of late to above RM2,500/t, has given the Malaysian authorities more time to evaluate the present export tax structure.

On the GST, the house believes the efund process has been smoothened after the initial teething problems with improved documentation submission.

Overall, Maybank-KE is maintaining its Neutral call on the sector. The house have Buy calls on Bumitama Agri (TP: $0.85) and Wilmar (TP: $4.14).