February 7, 2011


Thailand turns to soyoil on palm oil shortage



Palm oil shortage and the resulting soaring price are moving Thai consumers to buy soyoil instead which is good news for the Thai Vegetable Oil (TVO), a leading soyoil producer, brokerage houses said.


DBS Vickers Securities (Thailand) says the company's outlook is robust, with sales volume boosted by the palm oil shortage and higher margins from rising soy prices. It expects TVO's fourth quarter 2010 earnings to jump 60% to THB529 million (US$17.14 million), on a 15% gross margin, compared with 9.2% in the third quarter. TVO reported net profit of THB954.27 million (US$30.92 million) in the first nine months.


DBS also expects this year's earnings to surge 35% to THB2 billion (US$64.80 million) on higher margins, higher volumes and a lower tax rate. In the fourth quarter of 2010 alone, the sales volume soyoil was expected to rise 20% from the previous quarter because of the palm oil shortage. Soy prices surged 54% over the last six months to US$14.22 (THB438.75) per bushel currently. The upward trend should persist, given tight supply and strong demand.


According to research by Kim Eng Securities, TVO will enjoy higher sales volumes as customers turn to soyoil instead of palm oil. TVO is expected to show impressive performance in the first quarter of this year.


Kim Eng noted that the soyoil industry might ask the Commerce Ministry to increase the price of the oil to THB55 (US$1.78) per bottle from THB46 (US$1.49) because of the higher cost of soy.


Higher demand and prices will strengthen TVO revenue in 2011, and it will increase production capacity to cash in on the situation. The brokerage house forecasts TVO's revenue to grow by 15% to THB24.18 billion (US$783.41 million).


Under the estimated gross profit margin of 12%, Kim Eng predicted that TVO would post net profit of THB1.85 billion (US$59.94 million) this year, an increase of nearly 22% from the expected 2010 net profit of THB1.52 billion (US$49.25 million).


TVO will report its 2010 operational performance to the Stock Exchange of Thailand soon.


Kim Eng Securities recommends that investors buy TVO stock because of the bright outlook for soyoil prices.


Finansia Syrus Securities expects TVO's net profit in the fourth quarter of 2010 will be a record for the company. Finansia estimated that fourthquarter earnings would increase by 50% quarter on quarter and 63% year on year.


The outstanding growth in the fourth quarter was due mainly to the shortage of palm oil, sending sales volumes up 20% from the third quarter, while the price increased by 6%.


The securities firm predicts China will resume soy imports after suspending them during the Lunar New Year. This will boost the soy price to US$15 per bushel.


However, the local soy price might decline in the second quarter because March to June is Brazil's harvest and export period.


The trend of higher prices of soyoil and soymeal will help boost TVO profit in 2011 to THB1.84 billion (US$59.61 million), Finansia said.