source: [thestar online]
Plantation stocks need more convincing catalysts
PETALING JAYA: More convincing catalysts may be needed before plantation stocks see a re-rating despite the recent run-up of crude palm oil (CPO) prices, which climbed to a year-to-date high recently.
CPO for January delivery rose 7.79% to RM2,628 per tonne on Nov 1 on a year-to-date basis but have since lost some ground, closing at RM2,508 last Friday.
Analysts point to concern about possible lower palm oil production (hence the higher CPO prices) as a reason for the buying interest in plantation stocks. However, they remain neutral on the sector, saying that more convincing data would be needed before a re-rating.
Kenanga Investment Bank Bhd analyst Alan Lim Seong Chun has maintained a “neutral” call on the sector but has turned more bullish on CPO prices for 2014.
“The reason why we are still neutral despite the expectation of higher CPO prices is that most big cap planters have already reflect the valuation of RM2,650 to RM2,700 for CPO prices in 2014,” he told StarBiz.
He said the 2013/2014 average CPO price forecasts of between RM2,400 and RM2,700 per tonne remains unchanged.
His “outperform” calls were for CB Industrial Product Holding Bhd, TSH Resources Bhd and PPB Group Bhd with target prices of RM3.18, RM2.56 and RM15.20 respectively.
CIMB Investment Bank Bhd analyst Ivy Ng said in a report that the price trend was positive for planters but cautioned that upside might be limited by higher soybean supplies and rising export costs.
Hong Leong Investment Bank Bhd analyst Chye Wen Fei said in a separate note: “From a technical perspective, CPO futures did break out from a major reversal trend. With sentiment likely to stay positive in the short term, there may be potential trading opportunity.”
She advised investors to focus on counters that are liquid like IOI Corp Bhd.
According to Chye, catalysts in the sector include timely implementation of higher biodiesel mandate in Malaysia and Indonesia, upcoming Malaysian Palm Oil Boardstatistics expected to be released today and more clarity on a potential minimum wage hike in Indonesia.
Based on individual company development, Kenanga’s Lim said Wilmar International Ltd’s strong set of results for its nine months ended Sept 30 will benefit PPB Group, which contributes to more than 60% of the latter’s earnings.
PPB Group owns about 18% of the Singaporean associate.
“Wilmar’s nine-month core net profit increased 24% to US$950mil due to the turnaround in its oilseeds and grains division, which registered profit before tax of US$116mil against loss before tax of US$32mil last year,” he said.
Separately, analysts continue to be neutral on Kuala Lumpur Kepong Bhd’s (KLK) acquisition of a 20.1% stake in Equatorial Palm Oil Plc and a 50% stake in Liberian Palm Development for RM67.6mil.
Lim opined that the price tag for the purchase was fair while impact on KLK’s balance sheet was minimal.
In a separate note, PublicInvest Research said it was still too early to factor in any contributions from the proposed acquisitions as the two companies were still at early stages of developing the oil palm estates and were loss-making.
