How Singapore firms will be affected by Malaysia's low palm oil stocks

End-May stock hit 11-month low.

According to CIMB, palm oil stocks in Malaysia fell for the fifth consecutive months in May to reach an 11-month low. Malaysia's end-May stock was down 5% mom at 1.82m tonnes. This is 5% below CIMB's forecast, but 2% above the Reuters poll estimate of 1.78m tonnes. The stocks were lower than CIMB's forecast mainly due to the lower-thanexpected palm oil output from Sabah, and stronger-than-expected exports.

For exposure to the sector, CIMB continues to like First Resources (one of the most profitable and youngest estates), Wilmar (a beneficiary of higher palm oil supplies and stocks), and IOI Corp (upside from the listing of its property arm).

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The lower palm oil stocks and 10.3% rise in palm oil exports for the first 10 days of June, against the same period in May, are positive factors for the
CPO price outlook.

They also suggest to us that demand for palm oil has increased due to its attractive pricing over soybean and other edible oils. A slower growth in CPO production as palm oil enters its low production cycle has also helped to pare down stocks.

We expect CPO prices to remain firm in the near term as the lower inventory and continued improvement in demand ahead of the Ramadan festivities in July are supportive of prices.

We like First Resources for its well-managed estates and attractive valuations. Wilmar remains one of our top picks as we expect the group's earnings to benefit from higher sales volumes for palm oil and improved crush margins.

We also like IOI Corp in Malaysia as we feel investors have not fully priced in the potential of its property business, which will be demerged and separately listed in 4Q13.