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NIGERIA OIL PALM INDUSTRY - Time to extract trapped value

NIGERIA OIL PALM INDUSTRY

Time to extract trapped value

The Nigeria oil palm industry has been in the spot light in recent times following the exclusion of Palm oil importers from accessing the CBN FX window. In our view, the move would support a reduction in the importation of palm oil products, thereby boosting local production. We estimate that about $320 million was spent importing 600,000 MT of CPO in 2015. In light of the industry shake-up, we take a closer look at the Nigeria oil palm sector, examine its development over the years, as well as prospects going forward. We think it is about that time to extract more value from the sector.

Policy pointing toward support for local production

In our October 2015 report titled Nigeria Agricultural Sector - Re-Cultivating Value, we stressed that Nigeria’s increasing call for national revenue diversification, climbing food import bill and fragile food security have been redirecting government focus to the Agriculture sector in recent years. Whilst the call has grown much louder since the significant decline in crude oil prices, the agriculture sector continues to appeal as a key “first-choice” diversification route amongst other sectors.

Oil Palm supply - a lot of catching up to do

At 970,000 MT per annum, local oil palm production had grown at 1.2% on a 50-year CAGR to 2015. Outpacing the growth in local production, oil palm consumption has grown at 2.8% over the same period as rising food demand by the growing population and increasing industrial use of oil palm products continue to expand the demand for the commodity. At 1.54 million MT, total consumption creates a shortfall of about 600,000MT which is currently met through imports from far Asian countries including Malaysia and Indonesia. Bridging the supply shortfall presents a huge upside for investment in local oil palm market.

PRESCO and OKOMUOIL positioned to benefit from industry shift

With decades of experience in the Nigeria oil palm industry, strong technical support from international parent companies, plantation base to support future growth and integration along the value chain, we believe that PRESCO and OKOMUOIL as leaders of the domestic oil palm industry (biggest quoted players in the Oil Palm industry) are well positioned to benefit from ongoing happenings in the sector, and the broader agriculture space. We therefore initiate coverage with BUY ratings on PRESCO (TP: N43.38) and OKOMUOIL (TP: N42.11).