Little impact from Indonesia’s new export tax system: Analysts

PETALING JAYA: Indonesia’s new export tax system is not expected to have a significant impact on the plantation industry, but demand remains a key concern, said analysts.

Affin Hwang Capital said the simpler new Indonesian export tax system will result in a lower effective tax but the new export levy is now payable irrespective of palm oil price.

The Indonesian Finance Ministry announced that export taxes for crude palm oil (CPO) and other palm oil products will be expressed in US dollars instead of a percentage of price.

It also said that the export levies of US$50/ tonne (RM190.50) and US$30/tonne (RM114.30) imposed on CPO and processed palm oil products are payable regardless of palm oil price, instead of when the price exceeds US$750/tonne.

The export levy will then generate tax revenue for the government even if CPO price falls below US$750/tonne.

Affin Hwang Capital believes the simpler new export tax system will help to provide some relief to planters, who now have to pay both the export levy irrespective of price and export tax when the price crosses the threshold price of US$750/ tonne.

Affin Hwang Capital is maintaining a “neutral” call on the plantation sector based on a CPO average selling price of RM2,320/tonne for 2015 and RM2,500/MT for 2016-2017.

MIDF Research, meanwhile, said it is positive on the changes as it provides better clarity for the plantation industry in Indonesia. With the new system, the all-in tax will be the CPO export tax plus the USD50/tonne levy.

The research house said the new export tax system will not have an impact to earnings as export tax savings will only come when CPO price exceeds USD750/tonne. The savings ranges from USD3.25/tonne to USD31.25/tonne or 5.8% to 11.1%.

“We do not expect such scenario to happen in the near term as our forecast for average CPO price for 2015 and 2016 are RM2,175/tonne and RM2,100/tonne respectively,” it noted.

MIDF Research has increased its inventory estimate to 2.27 million tonnes from 2.09 million tonnes, due to worse-than-expected CPO export.

An SGS survey indicated that Malaysian palm oil exports declined 15.4% m-o-m in the first 15 days of July. Three-month CPO futures have fallen to RM2,131/tonne , thereby lowering year-to-date average to RM2,229/tonne .

MIDF Research is maintaining a “neutral” recommendation on the plantation sector, with an average CPO price of RM2,175/tonne for 2015, representing a 9% decline y-o-y against 2014 average CPO price of RM2,383.50/tonne.

It’s top pick is PPB Group Bhd as the company is expected to benefit from low CPO price.

“PPB’s 1Q15 earnings growth at +61% y-o-y is also the strongest among index-linked planters, which registered an average earnings decline of 48% y-o-y,” it said.