Legal Disclaimer: This briefing is for information purposes only.

Viewers are advised to read the Investment Research

Disclaimers and Disclosures as contained in each of our
Research publications discussed in this briefing. Additionally,
the contents herein are intended for Malaysian markets only and
is not for US Persons. Please note that none of the contents
herein shall be re-used or re-published in any manner that could
violate the rules and/or regulations of any other jurisdictions.
Palm Oil Price Outlook

The COVID and Crude Curse

8 May 2020

Hoe Lee Leng, Deputy Director

Head, Regional Plantations
RHB Research
Kuala Lumpur
RHB Guide to Investment Ratings

Stock Ratings:
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage

Industry / Sector Ratings:

Overweight The industry expected to outperform the benchmark index, weighted by market capitalisation, over the next 6-12 months.
Neutral The industry is expected to perform in line with the benchmark index, weighted by market capitalisation, over the next 6-12 months.
Underweight The industry is expected to underperform the benchmark index, weighted by market capitalisation, over the next 6-12 months.

Investment Research Disclaimers (page 1)

RHB has issued this report for information purposes only. This report is intended for circulation amongst RHB and its affiliates’ clients generally or such persons as may be deemed eligible by RHB to
receive this report and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. This report is not
intended, and should not under any circumstances be construed as, an offer or a solicitation of an offer to buy or sell the securities referred to herein or any related financial instruments.

This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB’s strategic, joint venture and/or business partners.
No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on
the same.

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution,
publication, availability or use would be contrary to the applicable laws or regulations. By accepting this report, the recipient hereof (i) represents and warrants that it is lawfully able to receive this
document under the laws and regulations of the jurisdiction in which it is located or other applicable laws and (ii) acknowledges and agrees to be bound by the limitations contained herein. Any failure to
comply with these limitations may constitute a violation of applicable laws.

All the information contained herein is based upon publicly available information and has been obtained from sources that RHB believes to be reliable and correct at the time of issue of this report.
However, such sources have not been independently verified by RHB and/or its affiliates and this report does not purport to contain all information that a prospective investor may require. The opinions
expressed herein are RHB’s present opinions only and are subject to change without prior notice. RHB is not under any obligation to update or keep current the information and opinions expressed herein
or to provide the recipient with access to any additional information. Consequently, RHB does not guarantee, represent or warrant, expressly or impliedly, as to the adequacy, accuracy, reliability, fairness
or completeness of the information and opinion contained in this report. Neither RHB (including its officers, directors, associates, connected parties, and/or employees) nor does any of its agents accept
any liability for any direct, indirect or consequential losses, loss of profits and/or damages that may arise from the use or reliance of this research report and/or further communications given in relation to
this report. Any such responsibility or liability is hereby expressly disclaimed.
Investment Research Disclaimers (page 2)

Whilst every effort is made to ensure that statement of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other subjective judgments contained in this
report are based on assumptions considered to be reasonable and must not be construed as a representation that the matters referred to therein will occur. Different assumptions by RHB or any other
source may yield substantially different results and recommendations contained on one type of research product may differ from recommendations contained in other types of research. The performance
of currencies may affect the value of, or income from, the securities or any other financial instruments referenced in this report. Holders of depositary receipts backed by the securities discussed in this
report assume currency risk. Past performance is not a guide to future performance. Income from investments may fluctuate. The price or value of the investments to which this report relates, either directly
or indirectly, may fall or rise against the interest of investors.

This report does not purport to be comprehensive or to contain all the information that a prospective investor may need in order to make an investment decision. The recipient of this report is making its
own independent assessment and decisions regarding any securities or financial instruments referenced herein. Any investment discussed or recommended in this report may be unsuitable for an investor
depending on the investor’s specific investment objectives and financial position. The material in this report is general information intended for recipients who understand the risks of investing in financial
instruments. This report does not take into account whether an investment or course of action and any associated risks are suitable for the recipient. Any recommendations contained in this report must
therefore not be relied upon as investment advice based on the recipient's personal circumstances. Investors should make their own independent evaluation of the information contained herein, consider
their own investment objective, financial situation and particular needs and seek their own financial, business, legal, tax and other advice regarding the appropriateness of investing in any securities or the
investment strategies discussed or recommended in this report.

This report may contain forward-looking statements which are often but not always identified by the use of words such as “believe”, “estimate”, “intend” and “expect” and statements that an event or result
“may”, “will” or “might” occur or be achieved and other similar expressions. Such forward-looking statements are based on assumptions made and information currently available to RHB and are subject to
known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement to be materially different from any future results, performance or achievement,
expressed or implied by such forward-looking statements. Caution should be taken with respect to such statements and recipients of this report should not place undue reliance on any such forward-
looking statements. RHB expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or circumstances after the date of this
publication or to reflect the occurrence of unanticipated events.

The use of any website to access this report electronically is done at the recipient’s own risk, and it is the recipient’s sole responsibility to take precautions to ensure that it is free from viruses or other
items of a destructive nature. This report may also provide the addresses of, or contain hyperlinks to, websites. RHB takes no responsibility for the content contained therein. Such addresses or hyperlinks
(including addresses or hyperlinks to RHB own website material) are provided solely for the recipient’s convenience. The information and the content of the linked site do not in any way form part of this
report. Accessing such website or following such link through the report or RHB website shall be at the recipient’s own risk.

This report may contain information obtained from third parties. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information and are not
responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied
warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental,
exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their
content.

The research analysts responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his or her personal views and opinions about any and
all of the issuers or securities analysed in this report and were prepared independently and autonomously. The research analysts that authored this report are precluded by RHB in all circumstances from
trading in the securities or other financial instruments referenced in the report, or from having an interest in the company(ies) that they cover.
Investment Research Disclaimers (page 3)

The contents of this report is strictly confidential and may not be copied, reproduced, published, distributed, transmitted or passed, in whole or in part, to any other person without the prior express written
consent of RHB and/or its affiliates. This report has been delivered to RHB and its affiliates’ clients for information purposes only and upon the express understanding that such parties will use it only for
the purposes set forth above. By electing to view or accepting a copy of this report, the recipients have agreed that they will not print, copy, videotape, record, hyperlink, download, or otherwise attempt to
reproduce or re-transmit (in any form including hard copy or electronic distribution format) the contents of this report. RHB and/or its affiliates accepts no liability whatsoever for the actions of third parties in
this respect.

The contents of this report are subject to copyright. Please refer to Restrictions on Distribution below for information regarding the distributors of this report. Recipients must not reproduce or disseminate
any content or findings of this report without the express permission of RHB and the distributors.

The securities mentioned in this publication may not be eligible for sale in some states or countries or certain categories of investors. The recipient of this report should have regard to the laws of the
recipient’s place of domicile when contemplating transactions in the securities or other financial instruments referred to herein. The securities discussed in this report may not have been registered in such
jurisdiction. Without prejudice to the foregoing, the recipient is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this
report.

The term “RHB” shall denote, where appropriate, the relevant entity distributing or disseminating the report in the particular jurisdiction referenced below, or, in every other case, RHB Investment Bank
Berhad and its affiliates, subsidiaries and related companies.

RESTRICTIONS ON DISTRIBUTION

Malaysia
This report is issued and distributed in Malaysia by RHB Investment Bank Bhd. The views and opinions in this report are our own as of the date hereof and is subject to change. If the Financial Services
and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. RHB Investment Bank Bhd has no
obligation to update its opinion or the information in this report.

DISCLOSURE OF CONFLICTS OF INTEREST

RHB Investment Bank Berhad, its subsidiaries (including its regional offices) and associated companies, (“RHBIB Group”) form a diversified financial group, undertaking various investment banking
activities which include, amongst others, underwriting, securities trading, market making and corporate finance advisory.

As a result of the same, in the ordinary course of its business, any member of the RHBIB Group, may, from time to time, have business relationships with or hold positions in the securities (including capital
market products) or perform and/or solicit investment, advisory or other services from any of the subject company(ies) covered in this research report.

While the RHBIB Group will ensure that there are sufficient information barriers and internal controls in place where necessary, to prevent/manage any conflicts of interest to ensure the independence of
this report, investors should also be aware that such conflict of interest may exist in view of the investment banking activities undertaken by the RHBIB Group as mentioned above and should exercise their
own judgement before making any investment decisions.
DISCLOSURE OF POTENTIAL CONFLICTS OF INTEREST IN RHB RESEARCH REPORTS
(Updated for April 2020)

RHB Investment Bank Berhad (RHBIB) – conflict of interest disclosures:

RHBIB has a financial interest in the securities or other capital market products of the following companies:
DRB Hicom, UMW, Hartalega, Pos Malaysia, Supermax, Top Glove, CIMB, Hong Leong Bank, Maybank, Public Bank, FGV, KLK, Time Dotcom, Bursa Malaysia, E&O, Sime Darby Property, SP Setia, MRCB,
Inari Amertron, Genting Malaysia, Dialog Group, Malakoff, TNB, CMS, Press Metal, Padini
RHBIB is a market maker in the securities or capital market products of the following companies:
Bermaz Auto, DRB Hicom, MBM Resources, Air Asia, Hartalega, IHH, Kossan, MAHB, Pos Malaysia, Supermax, Top Glove, CIMB, Maybank, Public Bank, Syarikat Takaful Malaysia, FGV, Axiata, Maxis, TM,
Time dotcom, IOI Properties, SP Setia, Gamuda, MRCB, Datasonic, Globetronics, Inari Amertron, Genting, Genting Malaysia, Bumi Armada, Dialog Group, MISC, Petronas Chemicals, Sapura Energy, Serba
Dinamik, TNB, Yinson, CMS, Press Metal, BAT, Scientex, SKP Resources, VS Industry, Frontken, Pentamaster, Guan Chong, Mega First Corporation, Leong Hup International, Ekovest

RHBIB’s staff or associated person serve as a director or board member* of the following companies:
-
*For the avoidance of doubt, the confirmation is only limited to the staff of research department

RHBIB received compensation for investment banking or corporate finance services from the following companies in the past 12 months:
Tan Chong, Air Asia, Freight Management, Hartalega, Kossan, MMC, AEON Credit, BIMB, MBSB, FGV, Genting Plantations, IJM Plantations, IOI Corp, TSH Resources, Axiata, Digi, TM, LBS Bina, IOI
Properties, Paramount, SP Setia, Sunway, Gamuda, George Kent, IJM Corp, Kimlun, MRCB, Sunway Construction, WCT, Datasonic, Genting, Genting Malaysia, Berjaya Sports Toto, Magnum, Malakoff,
Sapura Energy, Serba Dinamik, YTL Power, Al-Salam REIT, Sunway REIT, Power Root, Scientex, SKP Resources, Thong Guan, Focus Point, Techbond, Guan Chong, Leong Hup International, RCE Capital

RHBIB received compensation or benefit (including gift and special cost arrangement e.g. company/issuer-sponsored and paid trip) in relation to the production of reports for the following companies:
-
Regional YTD Performance Of Planters

10%

0%

-10%

-20%

-30%

-40%

-50%

-60%

Malaysia Singapore Indonesia

7
Share Price Performance Of Planters

2019 2020 YTD

119%

98%
73%

61%

51%
37%
20%
14%

9%

7%

5%

-5%
-11%

-12%

-13%
-14%

-15%

-21%
-27%

-37%
-41%
-42%
-44%

-56%
CBIP FGV GENP IJMP IOI KLK SOP SDPL TSH TAH FBMKLCI FBMPM

8
Key Highlights
POSITIVES
 CPO production slowdown is still imminent in 2020
 Biodiesel programme is still ongoing, at this point, BUT there is uncertainty
involved
 Food demand is growing from household sector due to more dining at
home during global lockdowns

NEGATIVES
 Crude Oil Prices – The collapse of crude oil prices has caused biodiesel
mandates to be questioned. Our base case assumption is that crude oil
averages USD40/barrel in 2020
 COVID-19 affects food demand from HoReCa sector and causes logistics
issues in lockdown countries, demand from major importing countries is a
question mark now

9
 CPO Production Slowing Down

 CPO production growth has been slow in 2020 – in Malaysia down 22%
YTD-March. 2020 expectations by Oil World is -10.3% YoY
 In Indonesia, CPO output is down 20% in Jan 2020. 2020 expectations by
Oil World is to grow +1.3% YoY, coming from slowdown of new planting in
last few years, dry weather experienced this year and fertilizer application
reduction by smallholders in 2019.
Palm Oil Global Supply and Demand Sabah Rainfall Patterns

Source: Oil World Source: GanLing

10
 But Demand is in question now….

Consumption of CPO Forecasts Long term edible oils consumption (kg/capita)

1999 2009 2015 15-year CAGR

USA 49.1 52.1 58.3 1.2%
EU 41.2 60.2 62.1 2.8%
Pakistan 18.5 20.5 22.6 1.4%
China 13.0 23.0 26.1 4.8%
Indonesia 15.8 25.3 41.7 6.7%
India 10.9 13.6 16.7 2.9%

Source: Oil World Source: Oil World

11
Stock/Usage – Still Below Historical Averages
CPO Stock/Usage Ratio Still Trending Down 17 Oils & Fats and 8 Veg Oil Composites Still Falling

Source: Oil World, RHB

 Stock/usage ratio for CPO- ↓ trend,
but for SBO, ↑ trend :
 CPO – 16.5% in 2020 (from
18.6% in 2019, 20.9% in 2018)
 CPO - LT average: 17.5%
 SBO – 11.2% in 2020 (from
10.4% in 2019, 11% in 2018)
 SBO - LT average: 11.9%
 Stock/usage ratio for 17 oils & fats ↓ :
 12.6% in 2020 (from 13.4% in
2019, 14.2% in 2018)
 Long term average: 12.7%
 Stock/usage ratio for 8 Veg Oils ↓ :
 13.7% in 2020 (from 14.3% in
2019, 15.2% in 2018)
 Long term average: 13.7%

12
Stock/Usage – Scenario Analysis
What If Things Are Worse-Than-Expected?

Palm Oil BASE CASE (OIL WORLD) SCENARIO 1 (RHB FC) SCENARIO 2 (WORST CASE)
PALM OIL 2018 2019 2020F 2018 2019 2020F 2018 2019 2020F
73.45 77.20 75.00
Production Total Annual Production 73.45 77.20 75.00 73.45 77.20 75.00

EU 8.14 8.52 7.58 8.14 8.52 6.82 8.14 8.52 6.82

China 5.36 6.49 7.11 5.36 6.49 6.40 5.36 6.49 6.40
India 9.18 10.18 9.35 9.18 10.18 8.18 9.18 10.18 8.18
Indonesia 11.14 14.46 15.38 11.14 14.46 15.18 11.14 14.46 15.18
Consumption
Malaysia 3.25 3.58 3.33 3.25 3.58 3.33 3.25 3.58 3.16
US 1.50 1.43 1.38 1.50 1.43 1.24 1.50 1.43 1.24
Others 31.05 32.98 32.41 31.05 32.98 32.41 31.05 32.98 31.39
TOTAL Consumption 69.59 77.65 76.53 69.59 77.65 73.56 69.59 77.65 72.38

Remaining Stock 14.64 14.46 12.66 14.62 14.41 15.63 14.62 14.41 16.81
Stock Stock/Usage (%) 21.0% 18.6% 16.5% 21.0% 18.6% 21.2% 21.0% 18.6% 23.2%
Historical average 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% 17.5%

EIGHT VEG OILS

Production 194.13 198.29 197.21 194.13 198.29 199.27 194.13 198.29 199.27
Consumption 189.52 198.38 198.01 189.52 198.38 195.04 189.52 198.38 193.85
Eight Veg Oil Complex Stock 28.81 28.3 27.08 28.81 28.3 30.05 28.81 28.3 31.24
Stock/Usage (%) 15.2% 14.3% 13.7% 15.2% 14.3% 15.4% 15.2% 14.3% 16.1%
Historical average 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5%

Source: Oil World, RHB

13
Stock/Usage – Scenario Analysis
CPO Stock/Usage Ratio Scenario Analysis

Source: Oil World, RHB

 Stock/usage ratio for CPO-

 Based on Oil World forecast, stock/usage ratio will fall to 16.5% in 2020
(from 18.6% in 2019)
 Based on RHB forecast, stock/usage ratio will rise to 21.2% in 2020
instead
 Worst case forecast, stock/usage ratio will rise to 23.2% in 2020
14
Stock/Usage – Scenario Analysis Assumptions
 Assumptions for RHB Stock/Usage Ratio Projections:
 Assume 1.7m tonne YoY (or -20%) decline in demand from EU = 10%
lower than Oil World forecast
 Assume 0.1m tonne YoY (or -1.4%) decline in demand from China = 10%
lower than Oil World forecast
 Assume 2m tonne YoY (or -20%) decline in demand from India = 13%
lower than Oil World forecast
 Assume 0.7m tonne (or +5%) increase in demand from Indonesia = 1.3%
lower than Oil World forecast
 Assume 0.2m tonne (or -13%) decline in demand from US = 10% lower
than Oil World forecast
 Assumptions for Worst Case Scenario (Scenario 2):
 Assume all the above; and
 Assume 0.4m tonne YoY (or -12%) decline in demand from Malaysia and
1.6m tonne YoY (or -5%) decline in demand from other countries (both
5% lower than Oil World)

15
What Does This Mean For CPO Prices?
CPO Stock/Usage Ratio vs CPO Prices

Source: Oil World, Bloomberg, RHB

 Assuming stock/usage ratio goes to 21% for CPO in 2020, we compare back
to previous years when stock/usage ratios were at these levels:
 2011/2012 – Stock usage ratio at 20.6%, CPO price averaged MYR2.865/t
 2014/2015 – Stock usage ratio at 22.1%, CPO price averaged MYR2,169/t
 2017/2018 – Stock usage ratio at 21%, CPO price averaged MYR2,232/t

16
China - Should Start Coming Back In ST
 China’s CPO imports have been weaker in first two months of 2020 – down 37%
YoY in YTD-Feb 2020. This is due to COVID-19 lockdowns which led to logistics
disruptions and secondary industries operational disruptions.
 China stock levels are down 17% MoM and are looking similar to 2019 levels now.
Imports should start coming back from April onwards.
 Risk going forward is the high soybean stock levels in China – which has been rising
due to trade war truce purchase agreements from the US and as African swine flu
effects are dwindling. Once swine inventories normalise, China will start crushing
again and CPO demand will fall.
China’s YTD Palm Oil Imports -37% YoY China’s CPO Stocks

Source: Bloomberg Source: MPOC

17
India – Imports Down 18% YTD

 India’s CPO imports are down 18% YoY in YTD-Mar 2020,

while edible oil imports fell 6.1%.
 Imports from Malaysia were down 92.8% in YTD-Mar
2020, due to political issues.

India’s edible oil imports were down 6.1% YTD-Mar India’s Import Duty Changes
2020 while CPO imports declined by 18% YoY

Source: Bloomberg, Oil World

18
India – COVID Impact Not Felt Yet?
 Lockdowns only happened in April, so full impact not seen yet
 Household consumption is expected to increase, but household only accounts for
30% of demand, versus the hotel/restaurant sector - 40% of demand.
 Logistics disruptions - packing materials, inter-state transportation, labour shortages
also can cause further impact to demand.
 We have assumed 2m tonne decline (-20% YoY) in demand in 2020
 Pent up demand should come back once lockdowns lifted

India’s PO Stock Levels are down 29% YoY in March 2020

Source: MPOC

19
Is CPO Competitively Priced?

 Current price gap has widened, at –USD99/tonne from –USD5/tonne

last month. Now in line with historical gap of USD100/tonne.

 With this price gap, price-sensitive countries may switch back to CPO
CPO from SBO if they think the price is attractive enough.
CPO is trading at USD99/tonne discount to SBO

Source: Bloomberg

20
 Indonesia – Key To Biodiesel Demand

 Based on Oil World forecast, Indonesia consumption expected to rise 6.3%

YoY (or 0.9m tonnes) in 2020 after rising 30% in 2019.
 This assumes demand for food is only growing at 0.2m tonnes in 2020
(from normal increase of 0.4-0.5m tonnes).

 Remaining demand growth of 0.7m tonnes to come from biodiesel

mandates (much lower than if B30 mandate were to be implemented of
+2.5-3m tonnes)
Consumption of CPO Forecasts Long term edible oils consumption (kg/capita)

1999 2009 2015 15-year CAGR

USA 49.1 52.1 58.3 1.2%
EU 41.2 60.2 62.1 2.8%
Pakistan 18.5 20.5 22.6 1.4%
China 13.0 23.0 26.1 4.8%
Indonesia 15.8 25.3 41.7 6.7%
India 10.9 13.6 16.7 2.9%

Source: Oil World Source: Oil World

21
Biodiesel – No Longer A Demand Catalyst?
Gas Oil and CPO Price Gap at –USD31/Barrel

Source: Bloomberg

 The lower biodiesel volumes assumed by Oil World is due to the wide gap
between CPO and gasoil now, of USD30/barrel or USD220/tonne.
 With this wide gap, the biodiesel fund in Indonesia will run out of funds by
3Q2020 and Indonesia may decide to stop pushing for B30 mandate to be
fulfilled in 2020.
 In our assumption, we impute a shortage of 2.3m tonnes from original B30
target.

22
Indonesia biodiesel mandate
Indonesia Biodiesel Mandate
Sector April 2015 January 2016 January 2020 January 2025
Transportation - public service
15% 20% 30% 30%
obligation (PSO)

Transportation - non public

15% 20% 30% 30%
service obligation (non PSO)

Industry and Commercial 15% 20% 30% 30%

Power plants 25% 30% 30% 30%

Source: Ministry of Energy and Mineral Resources

 In 2017, Indonesia produced 3.4m kilolitres of biodiesel in total, of which

2.6m (2.2m tonnes) was for local consumption.

 In 2018, Indonesia produced 5.9m kilolitres, of which 3.9m (3.5m tonnes)

was for local consumption, with the rest for export.

 In 2019, Indonesia produced an estimated 8.4m kilolitres, of which 6.4m

(5.4m tonnes) was for local consumption, based on full implementation of
B20 mandate. This is a +64% YoY increase.

23
Indonesia biodiesel – how much for 2020?
Biodiesel production and distribution in Biodiesel potential output in Indonesia
Indonesia (YTD-Mar 2020)

Source: Directorate General of New Renewable Energy and Energy Conservation Source: Sumwin Group, POC 2019

 For 2020, if B30 implementation is achieved, this would add an additional

3m tonnes (+55%) of CPO usage for biodiesel.
 Biodiesel players have already received the quotas for production of 9.6m
kilolitres for 2020 and YTD production is up 10% YoY, on track to hit target.
 BUT, Indonesian government determination is key. Will they continue
subsidizing biodiesel once fund runs out?

24
Malaysian biodiesel – no B20 for now
Malaysian Biodiesel Production
Year Biodiesel Production Quantity Biodiesel Exports Local Domestic Consumption
2008 171,555 102,108 N/A
2009 222,217 227,457 N/A
2010 117,173 89,609 N/A
2011 173,220 49,999 20,343
2012 249,213 28,983 113,276
2013 472,129 175,032 185,039
2014 600,524 87,856 295,451
2015 763,532 178,942 382,000
2016 500,857 83,581 350,000
2017 720,410 235,291 358,586
2018 1,089,964 509,585 429,213
2019 1,209,777 609,777 600,000
Jan-March 2020 N/A 112,000 N/A
Source: Sumwin Group

 Malaysia produced an estimated 1.21m tonnes of biodiesel in 2018,

based on B10 mandate.
 B20 mandate was supposed to be imposed by end 2020, but this has
been postponed according to the Government. Local demand should
remain flat at 0.6m tonnes in 2020.
 Biodiesel exports from Malaysia was at 0.6m tonnes in 2019, and we
should expect this to remain flat in 2020, coming from exports to EU
(mandated).
25
Key Risks

 Crude Oil Prices – Our base case assumption is that crude oil averages
USD40/barrel in 2020. However, should crude oil prices drop more than
expected, we may need to reassess our view on discretionary biodiesel
viability.

 COVID-19 – Our base case assumption is that this is contained by 1H20, and
that things will return to normal thereafter. If this does not happen, we will have
to relook at our demand assumptions

 Weather – Our base case assumption is that there is no extreme weather

condition in 2020. However, should the weather turn for the worse and
extreme climate conditions arise, we may need to reassess our view on
production growth estimates.

26
Crude Oil Price Risk

Crude Oil Price Forecast

Crude Oil Price Worst Case Scenarios

Source: RHB

 Currently, our in-house crude oil price assumptions remain at USD40/bbl

for 2020, while our longer term assumption is USD60/bbl.
 If the worst case scenario is realized, we would need to revise our CPO
forecasts

27
CPO Price Outlook

 Overall, we believe 2020 will still be a better year (versus 2019’s

MYR2,020) for CPO prices.

 However, CPO prices will likely be weak in 2Q and 3Q 2020, before

staging some recovery in 4Q20, post-seasonal peak period.

 This is barring a longer-than-expected COVID-19 phenomenon impact and

a larger-than-expected spread, as well as a steeper-than-expected crude
oil price decline.

 Our 2020 price average is MYR2,400/t, while our 2021 price average is
MYR2,500/t. 1Q2020 average was around MYR2,680/t, while we expect
2Q to be MYR2,000-2,200/tonne, 3Q MYR2,100-2,300/tonne and 4Q
MYR2,300-2,500/tonne.

28
Summary

 Our sector recommendation is NEUTRAL.

 For big-cap plantation stocks, we assign a target CY20 PE of 25x for their
plantation divisions.
 For the mid-cap plantation stocks, we assign a target PE of 14-20x CY20.
 For the regional players, we assign a target PE of 10-15x CY20
 Our valuation is backed up with EV/ha targets:
 - Between USD25,000-35,000/ha for big cap planters
 - Between USD5,000-20,000/ha for mid cap planters
 Top Picks:
- Malaysia : IJMP, SOP, TSH
- Singapore : First Resources
- Indonesia : Astra Agro

29
Valuations – CPO Price Vs Share Price

Source: RHB

30
Valuations – Share Price vs Historical P/E

Source: RHB

31
Valuations – Share Price vs GFC P/B Trough

Source: RHB

32
Valuation and Recommendation

Source: RHB Note: Based on closing date 5 May 2020

33
EV/HA Regional Comparison

EV/ha (USD)
35,000

30,000

25,000

20,000

15,000

10,000

5,000

Source: RHB

34
Sensitivities

Earnings sensitivity to changes in CPO prices

Net Profit Change For Every MYR100/tonne Change

Genting Plantations 7-9%
KLK 5-7%
IJMP 8-10%
IOI Corp 4-6%
Sime Plantation 7-9%
FGV 7-9%
SOP 8-10%
TSH 7-9%
Ta Ann 15-18%
Golden Agri, SGD 8-10%
First Resources, SGD 6-8%
Bumitama Agri, SGD 7-9%
AALI, IDR 9-11%
Lonsum, IDR 11-12%
SSS, IDR 12-13%

Source: RHB

35
Thank You

36
Contact Info

For more information, kindly contact

PLANTATION RESEARCH TEAM CONTACT

Hoe Lee Leng Tel : +603 9280 8860

Regional Sector Head Email : hoe.lee.leng@rhbgroup.com

Andre Benas Tel : +6221 2970 7066

Indonesia Plantatiom Email : christopher.benas@rhbgroup.com
Legal Disclaimer: This briefing is for information purposes only.
Viewers are advised to read the Investment Research
Disclaimers and Disclosures as contained in each of our
Research publications discussed in this briefing. Additionally,
the contents herein are intended for Malaysian markets only and
is not for US Persons. Please note that none of the contents
herein shall be re-used or re-published in any manner that could
violate the rules and/or regulations of any other jurisdictions.