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Regional Morning Notes Summary - 08 May 2017

Core Content Overview

This document provides a summary of market updates and investment insights for the plantation and coal sectors in Indonesia, Malaysia, Singapore, and China, along with key company updates and analyst insights. The main focus is on biodiesel procurement, CPO prices, coal demand and pricing trends, and stock recommendations.

Main Sectors and Key Points

Plantation Sector - Regional

• Indonesia's Biodiesel Procurement:

  • The PSO segment is expected to blend 1.35m kl of biodiesel from May to October 2017, below market expectations.
  • The volume is lower than the third biodiesel contract and lower than previous periods.
  • The old biodiesel pricing mechanism (CPO base price + US$125/tonne) remains in place for now.
  • AKR Corporindo will receive a higher supply of 24,000 kl, a +14.3% hoh increase compared to the previous period.

• Sector Outlook:

  • CPO prices are expected to stay firm in 1H17 and weaken in 2H17 due to increased production and stagnant demand.
  • Maintain OVERWEIGHT for the plantation sector.

• Top Picks:

  • Bumitama Agri (BAL SP): Buy, target price S$1.25.
  • First Resources (FR SP): Buy, target price S$2.15.
  • Kim Loong Resources (KIML MK): Buy, target price RM4.20.
  • Astra Agro (AALI IJ): Buy, target price Rp19,045.
  • Sampoerna Agro (SGRO IJ): Buy, target price Rp2,300.

Coal Sector - China

• Coal Prices:

  • Entering a downtrend due to increased supply and weaker demand from government policies promoting renewable energy.
  • The NDRC has removed the 276-working day policy, allowing coal miners to operate under a 330-day scheme, which increases supply.
  • Coal demand is expected to soften throughout the year due to the shift to renewables and the end of heating season.
  • Coal prices are expected to average Rmb550/tonne for 2017, higher than last year's average of Rmb473/tonne.

• Sector Outlook:

  • Maintain UNDERWEIGHT for the coal sector.

• Company Updates:

  • China Coal (1898 HK): Upgraded to HOLD, target price HK$4.20.
  • China Shenhua (1088 HK): Target price increased to HK$19.00.
  • Yan Zhou Coal (1171 HK): Maintained BUY, target price HK$7.50.

Key Indices Performance (as of 05 May 2017)

Sector Catalysts and Risks

Plantation Sector

• Catalysts:
  • Weather disruption could positively impact prices.
  • Increased demand from non-PSO segments in Indonesia.
• Risks:
  • Backtracking of biodiesel mandates in Indonesia and Malaysia.

Coal Sector

• Catalysts:
  • Coal prices may stabilize at relatively high levels.
• Risks:
  • Weaker demand due to government policies promoting renewables.

Corporate Events

Summary of Key Insights

• Indonesia's biodiesel procurement for May-Oct 17 is below market expectations, affecting the sector negatively.
• CPO prices are expected to remain firm in 1H17 and weaken in 2H17 due to increased supply and weak demand.
• Coal prices are entering a downtrend in China, with supply increasing and demand weakening.
• Geely Auto reported strong sales growth in April 2017, driven by new models.
• Malindo Feedmill had weak results in 1Q17, with a 52.8% yoy decline in net income and 56.5% qoq decline.
• The plantation sector is overweighted, with several companies recommended for buy and hold.
• The coal sector remains underweighted, with some companies upgraded to hold based on improved earnings forecasts.