Plantation corporations: Palm oil issuers ignited by CPO exchange

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - Korporasi perkebunan: Emiten sawit terpantik bursa CPO

16 October 2023

By: Szalma Fatimarahma and Annisa K. Saumi


Jakarta - The launch of the Indonesian CPO Exchange, which can provide alternative reference prices for crude palm oil and hedging facilities, is predicted to have a positive impact on issuers of palm oil and their derivative products. 

On Friday (13/10), the Commodity Futures Trading Authority (CoFTRA) of the Trade Ministry inaugurated the Indonesian CPO Exchange with the Indonesia Commodity and Derivatives Exchange (ICDX) as the sole operator. 

Following the establishment of the Indonesian CPO Exchange, the reference price for crude palm oil (CPO) in Indonesia is targeted to be formed in the first quarter of 2024. Previously, the benchmark CPO export price was calculated based on prices on the Rotterdam Exchange and Bursa Malaysia. 

Thus far, several CPO issuers have joined and traded on the CPO Exchange, namely PT Bakrie Sumatera Plantation Tbk (UNSP), PT Eagle High Plantation Tbk (BWPT), PT Sampoerna Agro Tbk (SGRO), PT Salim Ivomas Pratama Tbk (SIMP), and PT Sinar Mas Agro Resources and Technology Tbk (SMAR). 

Senior Investment Information of Mirae Asset Sekuritas Nafan Aji Gusta said that the operation of the CPO Exchange could be a catalyst that triggers the movement of shares in the plantation sector, including CPO, so that liquidity increases. 

"With increased liquidity, in the long term, the market cap performance is expected to increase. But it depends on how the issuer can continuously implement Good Corporate Governance [GCG], so that it can improve performance on an ongoing basis," Nafan explained to Bisnis on Friday (13/10).

Likewise, Mirae Asset Sekuritas analyst Rizkia Darmawan stated the CPO Exchange could be a positive catalyst for the Indonesian palm oil industry, especially in terms of maintaining price stability for CPO products in the country. 

He hopes that the establishment of this CPO exchange can be a positive first step to increase the value of Indonesia's domestic CPO products. 

"Considering that Indonesia's global export contribution is more than 50%. It should be noted that, currently, Bursa Malaysia is still the reference for global CPO prices," said Darmawan. 

He hopes that the establishment of the CPO Exchange can be a positive first step to increase the value of Indonesian domestic CPO products. 

"Hopefully, in the future, this step can continue to be developed to the point of standardising the upstream to downstream processes of our palm oil industry," he said. 

In this sector, Mirae Asset Sekuritas Indonesia chose AALI, LSIP, and NSSS shares as top picks in the CPO sector. AALI and LSIP shares received a trading buy recommendation with a target price of Rp8,250 and Rp1,180 per share, respectively. 

Meanwhile, Infovesta Kapital Advisori Research Analyst Arjun Ajwani said the CPO Exchange was inaugurated amid the outlook for the vegetable oil industry that was overshadowed by uncertainties caused by China's economic slowdown, rising yields and interest rates, and an abundant supply of CPO.

“So, it is better to avoid CPO issuers for a while. The presence of the CPO Exchange will not have an impact if the issuer's outlook is not favourable," he said. 

Currently, global CPO prices still refer to Bursa Malaysia. Referring to Bloomberg data, the most active CPO contract price was parked at 3,737 ringgit per tonne on Friday (15/10). At this level, CPO fell 7.04% year-to-date (YtD) from 4,020 ringgit per tonne at the end of last year. 

In line with this, most shares of palm oil issuers declined throughout the current year of 2023. In terms of YtD growth, SMAR shares dropped by 12.93%, AALI decreased by 9.66%, and SSMS were corrected by 18.37%.


Rating down 

In her research, Ciptadana Sekuritas analyst Yasmin Soulisa lowered her recommendation for the plantation sector from overweight to neutral. According to her, the sector is overshadowed by the sloping positive catalyst that could trigger global CPO prices. 

She also cut the projection for the average CPO price in 2023 to 3,900 ringgit per tonne and maintained the estimate of 4,500 ringgit per tonne in 2024. Yasmin said that the reduction in CPO price outlook had an impact on the issuer's lower profit expectations. 

"The projected decline in CPO prices in 2023 is in line with supply that remains high in Indonesia and Malaysia, so that the price has fallen 29.3% YoY to 3,885 ringgit per tonne in the 9 months of 2023," she explained in research published by Bloomberg as quoted on Sunday (15/10). 

In addition, Yasmin also highlighted the plant age factor for several palm oil issuers as a challenge for future performance. This, among others, is faced by AALI and LSIP, so they must focus on replanting activities. 

In the palm oil plantation sector, Ciptadana Sekuritas prefers AALI because it has strong production yields, as well as DSNG and TAPG which have young plants and promising prospects for increasing production yields. 

All three received a buy rating with a target price of Rp8,600 for AALI, Rp760 for DSNG, and Rp640 for TAPG. In contrast, SIMP shares are recommended to hold with a target price of Rp400 per share in 2024. 

From palm oil issuers, PT Sampoerna Agro Tbk (SGRO) also expressed support for the presence of the CPO Exchange. 

Sampoerna Agro Investor Relations Stefanus Darmagiri said SGRO supports the presence of the CPO Exchange that has just been launched. According to him, SGRO will continue to monitor developments related to the CPO Exchange. 

"In the future, the CPO Exchange is expected to be able to identify the Indonesian CPO price index," said Stefanus when contacted by Bisnis on Thursday (12/10). 

Currently, said Stefanus, SGRO sees that world CPO prices are still largely determined by global supplies and demand for vegetable oils. 

Furthermore, Stefanus explained that currently all SGRO CPO sales are aimed at the domestic market. Because of this, the presence of the CPO Exchange will not have a direct impact on the CPO price and sales of SGRO.

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