JP Morgan Indo : ASEAN Plantations : Indonesia: export taxes start to bite

Asian Plantations:    Indonesia: export taxes start to bite

The tax    levied on Indonesian CPO exports has increased 3.5x in the last four months    (from $62/T in October to $224/T in January). In a previous Note ("Indonesia's Export Tax: Who is paying for it"? 21 Oct 2010), we had
argued that the burden of the export tax appeared to be borne by the traders rather than the Indonesian planters. Not only is that situation  reversing against the planters, but it also appears that at these levels of    palm oil
prices, upside from higher CPO prices is accruing to the    Government more than shareholders.
 
*        Export    taxes manifesting in lower ASPs in Indonesia vs. KL Spot prices: Astra    Agro reported that it sold 6,000 T of CPO (f.o.b Belawan) at Rp10,130/kg.    Adjusting for VAT and currency, this translates to
Malaysian  equivalent    price of M$3,142 /T. This is an 18% discount to the spot price  (on 3    January) of M$3,828.
 
*        Upside    to Indonesian planters earnings starts to taper off: Since the end of    October, CPO prices have increased (in USD terms) by $266/T, in which period    export tax has increased by $162/T. In effect, 60% of
the increase in    prices has flowed to taxes. As prices rise further, the slab structure of    the tax decreases the participation of Indonesian CPO ASPs to gains in CPO    price. While Malaysian planters are also levied a
windfall tax, the burden    is much less onerous.
 
*        Malaysia    CPO plays better exposed to price upside from here? Since the beginning    of December, AALI, LSIP as well as the Singapore-listed Indonesia plays    have broadly tracked CPO prices higher. From here
on, however, we think    investors looking for exposure to upside to CPO would be better served by    Malaysian plays, of which we think IOI stands out as a laggard along with    Sime Darby.