Plantation sector
Maintain overweight: We are keeping our overweight call on the regional plantation sector after upgrading our 2010 to 2011 crude palm oil (CPO) price forecasts by 5%.
Although the El Nino may be weakening, its adverse impact on palm oil yields is expected to be felt only in the later part of 2010 and 2011. Higher crude oil price, rising biodiesel mandates and attractive tax breaks for biodiesel in Argentina and Indonesia are expected to boost biodiesel production.
CPO price upside in the near term may be limited due to rising soybean production from South America. But we believe prices may be primed for an upswing in the later part of 2010 given the potential palm oil supply shortfall.
There is no change to our overweight stance on Singaporean and Indonesian planters or our trading buy call on Malaysian planters. For exposure to the regional palm oil sector, Singapore is our top pick, followed by Indonesia and Malaysia.
We are raising our CPO price forecasts by 5% to US$800 (RM2,560) per tonne for 2010 and US$830 for 2011 given the bigger-than-expected impact of El Nino on Malaysian estates in 1Q10, weaker palm oil production and higher crude oil price. We project average international CPO price to rise 17% in 2010 and a further 4% in 2011.
We expect the strong crude oil price and fairly tight global edible oils supplies to provide firm support to CPO price in 2Q.
Assuming crude oil price continues to trade at US$85/barrel, CPO price should see support at around RM2,485. However, the expectation of a bumper soybean harvest from South America, seasonally higher palm oil output in the coming months and the narrowing price discount between RBD (refined, bleached and deodorised) palm olein in Malaysia and soybean oil from Argentina to only US$10 per tonne as at April 8, 2010 will limit the upside potential for CPO price from the current level in the short term.
We expect CPO price to trade in the RM2,300 to RM2,700 price range in 2Q10.
We are revising our FY10 to FY12 earnings for all the planters in our universe to account for the new CPO price assumptions.
Apart from upgrading our CPO price assumption, we are also pruning our FFB (fresh fruit bunches) yield assumptions due to the dry weather experienced by the Malaysian planters in 1Q10. Our operating cost projections are also increased slightly as we expect fertiliser prices to be firmer due to higher crude oil prices. Overall, this results in changes of between -2% and +21% for our FY10 to FY12 earnings estimates for the planters.
We are upping the target prices by up to 6%. Except for Bakrie Sumatra, we are increasing the target prices for all the planters under our coverage by up to 10% to account for the earnings revisions.
There is no change to our target price basis for all the planters. We value the big-cap CPO players at 18 times P/E (price/earnings). We continue to apply a higher P/E of 20 times to Wilmar due to its integrated agri business model, exposure to China and more stable earnings base.
For exposure to the regional plantation sector, we continue to prefer large-cap liquid planters. Wilmar is our top pick in the region given its market leadership in palm oil trades and China's edible oil market, potential increase in its weighting in the MSCI and FSSTI following the rise in the stock's free float, merger and acquisition possibilities, and the benefits from a potential yuan revaluation.
For high earnings leverage to the CPO price, our picks are Indofood Agri, Golden Agri, Astra Agro, London Sumatra, Sampoerna Agro, Genting Plantations and Hap Seng Plantations. - CIMB Research, April 16
This article appeared in The Edge Financial Daily, April 19, 2010.
Maintain overweight: We are keeping our overweight call on the regional plantation sector after upgrading our 2010 to 2011 crude palm oil (CPO) price forecasts by 5%.
Although the El Nino may be weakening, its adverse impact on palm oil yields is expected to be felt only in the later part of 2010 and 2011. Higher crude oil price, rising biodiesel mandates and attractive tax breaks for biodiesel in Argentina and Indonesia are expected to boost biodiesel production.
CPO price upside in the near term may be limited due to rising soybean production from South America. But we believe prices may be primed for an upswing in the later part of 2010 given the potential palm oil supply shortfall.
There is no change to our overweight stance on Singaporean and Indonesian planters or our trading buy call on Malaysian planters. For exposure to the regional palm oil sector, Singapore is our top pick, followed by Indonesia and Malaysia.
We are raising our CPO price forecasts by 5% to US$800 (RM2,560) per tonne for 2010 and US$830 for 2011 given the bigger-than-expected impact of El Nino on Malaysian estates in 1Q10, weaker palm oil production and higher crude oil price. We project average international CPO price to rise 17% in 2010 and a further 4% in 2011.
We expect the strong crude oil price and fairly tight global edible oils supplies to provide firm support to CPO price in 2Q.
Assuming crude oil price continues to trade at US$85/barrel, CPO price should see support at around RM2,485. However, the expectation of a bumper soybean harvest from South America, seasonally higher palm oil output in the coming months and the narrowing price discount between RBD (refined, bleached and deodorised) palm olein in Malaysia and soybean oil from Argentina to only US$10 per tonne as at April 8, 2010 will limit the upside potential for CPO price from the current level in the short term.
We expect CPO price to trade in the RM2,300 to RM2,700 price range in 2Q10.
We are revising our FY10 to FY12 earnings for all the planters in our universe to account for the new CPO price assumptions.
Apart from upgrading our CPO price assumption, we are also pruning our FFB (fresh fruit bunches) yield assumptions due to the dry weather experienced by the Malaysian planters in 1Q10. Our operating cost projections are also increased slightly as we expect fertiliser prices to be firmer due to higher crude oil prices. Overall, this results in changes of between -2% and +21% for our FY10 to FY12 earnings estimates for the planters.
We are upping the target prices by up to 6%. Except for Bakrie Sumatra, we are increasing the target prices for all the planters under our coverage by up to 10% to account for the earnings revisions.
There is no change to our target price basis for all the planters. We value the big-cap CPO players at 18 times P/E (price/earnings). We continue to apply a higher P/E of 20 times to Wilmar due to its integrated agri business model, exposure to China and more stable earnings base.
For exposure to the regional plantation sector, we continue to prefer large-cap liquid planters. Wilmar is our top pick in the region given its market leadership in palm oil trades and China's edible oil market, potential increase in its weighting in the MSCI and FSSTI following the rise in the stock's free float, merger and acquisition possibilities, and the benefits from a potential yuan revaluation.
For high earnings leverage to the CPO price, our picks are Indofood Agri, Golden Agri, Astra Agro, London Sumatra, Sampoerna Agro, Genting Plantations and Hap Seng Plantations. - CIMB Research, April 16
This article appeared in The Edge Financial Daily, April 19, 2010.
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