China removes export tax rebates

gan-huey-ling@ambg.com.my
4 June 2008

Bloomberg reported that China will eliminate tax rebates on the export of vegetable oils including soybean oil and palm oil from 13 June. The rebates are in respect of the 13% value added tax that exporters can claim from the government.

This development is the latest in China’s efforts to rein in inflation and ensure that there are sufficient supply of vegetable oils in the domestic market. Last month, China reduced import tariff on food items like olive oil, soybean meal and coconut oil but not soybean oil.

We believe that the elimination of export tax rebates would not have significant impact on CPO prices as China is mainly an importer of vegetable oils and not exporter.

In China, the predominant vegetable oil is soybean. According to the Customs General Administration, from Jan to April this year (#1) China imported 10.2m tonnes of soybean (21.5% YoY increase) and 1.0m tonnes of soybean oil (28.3% YoY increase). China imports more of soybean compared to soybean oil as it does most of its soybean crushing and refining internally. Palm oil imported by China rose 23.7% YoY to 1.6m tonnes during the same period.

We reckon that China’s demand for vegetable oils would remain strong in the wake of the Sichuan earthquake. From Jan to April this year, Malaysian palm oil exports climbed 15.6% YoY to 1.2m tonnes. China is the largest importer of Malaysian palm oil, accounting for 27% of the country’s exports in the first four months of the year.

For direct exposure to China, we recommend to Buy Wilmar International Ltd, with a target price of S$6.70. The group’s market share in the cooking oil segment in China is nearly 50%. In addition, Wilmar’s Arawana cooking oil is the official cooking oil in the coming Beijing Olympics. Almost 50% of Wilmar’s pre-tax profits are derived from China. Exposure of the Malaysian plantation companies to China is small. (#2) Among the companies under our coverage, only Kuala Lumpur Kepong (“KLK”) has operations in China. KLK has a fatty acid plant with production capacity of 100,000 tonnes/year, in Jiangsu Province.

Maintain Overweight on the plantation sector as high crude oil prices would lend support to CPO prices. Apart from positive demand, supply shortage is becoming increasingly frequent due to volatile weather patterns and natural disasters. We have Buy recommendations on IOI Corp and KLK and also on the smaller-caps like TH Plantations and Sarawak Oil Palms.



Plantation_080604.pdf


#1
根据美国农业部的报告，60pound的黄豆的oil crushing是11.5pound，meal crushing是44 pound。 中国可能因为转换基因多寡，而造成含油量不同。

#2
fatty acid应该是oleochemical的领域，目前除了wilmar占用中国食品市场外，我所知道的kwantas占有小规模的中国食油市场。

补充只做参考，尽量不扭曲原报告。