Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: RHB
Plantation sector
Maintain neutral: Malaysia's CPO production rose substantially in May by 13.7% month-on-month (m-o-m), while exports rose by 4.3% m-o-m. On a year-on-year (y-o-y) basis, the recovery is stronger, as production rose by 25.6% y-o-y, although exports rose by a smaller 2.7% y-o-y.
As a result of the larger increase in production vis-a-vis exports and the 53% m-o-m increase in CPO imports in May, closing CPO stock levels rose 14.8% m-o-m to 1.92 million tonnes in May (from 1.67 million tonnes in Apr). On a y-o-y basis, CPO stocks rose by a higher 22.8%.
As a result of the higher CPO stock levels, the stock/usage ratio in May rose to 11.15% (from 9.98% in Apr), and is now closer to the high end of historical scale of between 6.4% and 12.7%, quite a lot above the 9.1% historical average.
News flow from the global vegetable oil market has been mixed, with bullish factors for other vegetable oils like soybean, corn and rapeseed, and bearish factors for CPO and wheat. There continues to be production risk in northern US for corn and soybean, while conditions for growth of rapeseed in Europe are deteriorating due to insufficient rains.
In Malaysia and Indonesia, CPO production continues on its strong recovery trek, leading to rising stock levels in the midst of mediocre exports from Malaysia, while in Russia and Ukraine, wheat and grain crops are turning out higher than expected, leading to potential trade policy changes.
To complicate matters further, crude oil prices have fallen to below the crucial US$100 (RM303) a barrel mark again, thus increasing the bearish sentiment for CPO. CPO prices fell to as low as RM3,271 a tonne in the beginning of this week, down about 4% from last month's average of RM3,400.
Risks: (1) a significant change in crude oil price trend; (2) weather abnormalities; (3) change in emphasis on implementing global biofuel mandates and trans-fat policies; (4) significant changes in trade policies of vegetable oil importing or exporting countries; and (5) a sharper-than-expected global economic slowdown.
No change to our forecasts and CPO price assumptions of RM3,100 a tonne for 2011 and RM2,900 a tonne for 2012.
We maintain our 'neutral' stance on the sector, with 'outperform' on Sime Darby, TH Plantations, First Resources and CBIP; 'market perform' on KLK, Genting Plantations and IJM Plantations; and 'underperform' on IOI Corp. ' RHB Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2011.
Company Name: TH PLANTATIONS BHD
Research House: RHB
Plantation sector
Maintain neutral: Malaysia's CPO production rose substantially in May by 13.7% month-on-month (m-o-m), while exports rose by 4.3% m-o-m. On a year-on-year (y-o-y) basis, the recovery is stronger, as production rose by 25.6% y-o-y, although exports rose by a smaller 2.7% y-o-y.
As a result of the larger increase in production vis-a-vis exports and the 53% m-o-m increase in CPO imports in May, closing CPO stock levels rose 14.8% m-o-m to 1.92 million tonnes in May (from 1.67 million tonnes in Apr). On a y-o-y basis, CPO stocks rose by a higher 22.8%.
As a result of the higher CPO stock levels, the stock/usage ratio in May rose to 11.15% (from 9.98% in Apr), and is now closer to the high end of historical scale of between 6.4% and 12.7%, quite a lot above the 9.1% historical average.
News flow from the global vegetable oil market has been mixed, with bullish factors for other vegetable oils like soybean, corn and rapeseed, and bearish factors for CPO and wheat. There continues to be production risk in northern US for corn and soybean, while conditions for growth of rapeseed in Europe are deteriorating due to insufficient rains.
In Malaysia and Indonesia, CPO production continues on its strong recovery trek, leading to rising stock levels in the midst of mediocre exports from Malaysia, while in Russia and Ukraine, wheat and grain crops are turning out higher than expected, leading to potential trade policy changes.
To complicate matters further, crude oil prices have fallen to below the crucial US$100 (RM303) a barrel mark again, thus increasing the bearish sentiment for CPO. CPO prices fell to as low as RM3,271 a tonne in the beginning of this week, down about 4% from last month's average of RM3,400.
Risks: (1) a significant change in crude oil price trend; (2) weather abnormalities; (3) change in emphasis on implementing global biofuel mandates and trans-fat policies; (4) significant changes in trade policies of vegetable oil importing or exporting countries; and (5) a sharper-than-expected global economic slowdown.
No change to our forecasts and CPO price assumptions of RM3,100 a tonne for 2011 and RM2,900 a tonne for 2012.
We maintain our 'neutral' stance on the sector, with 'outperform' on Sime Darby, TH Plantations, First Resources and CBIP; 'market perform' on KLK, Genting Plantations and IJM Plantations; and 'underperform' on IOI Corp. ' RHB Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2011.
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