Stock Name: SIME
Company Name: SIME DARBY BHD
Data from the Malaysian Palm Oil Board (MPOB) showed July 2011 crude palm oil (CPO) output growth slowed for the second consecutive month in Malaysia, coming in at 1.751 million tonnes. Yield improvements in most peninsular states were mainly offset by weaker Sabah numbers. Conversely, exports grew 9% month-on-month (m-o-m) to 1.729 million tonnes led by stronger Chinese and European demand, but partly offset by lower shipments to India and Pakistan. Coupled with a 40% higher domestic consumption m-o-m, end-stock fell to 1.996 million tonnes, slightly lower than expected.
Despite the bullish undertone, we expect CPO prices to remain under pressure over the next two months. This season's harvest has yet to peak in August at 1.836 million tonnes (+4% m-o-m); it will only gradually ease from October onwards. And we see limited m-o-m export growth in August (+2%) and September (+5%), which will not be enough to reduce inventories from current levels. Based on these expectations, stock/usage ratios are likely to increase to 11.4% in August and September from circa 10.7% at end-July.
Year-to-date, regional plantation stock prices have generally outperformed CPO prices; although the recent drop in share prices has erased some of this. This is likely to continue a little longer as current negative sentiments in global equity markets may drag down plantation stock prices in the near term.
We believe names such as Singapore listed First Resources Ltd, TSH Resources Bhd and Sime Darby Bhd should be collected on dips as relative to peers, they have lower cost structure, stronger volume growth and diversified business models.
We continue to like Wilmar International Ltd amid the current strong spot processing margins for palm oil, bottoming out of soybean crush margins and seasonally higher 2H11 volumes. The recent increase in cooking oil prices has helped to alleviate some concerns, and we see tremendous potential for restocking in China as soybean and palm oil prices ease. This should drive Wilmar's 2H11 volumes. ' HwangDBS Vickers Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2011.
Company Name: SIME DARBY BHD
| Research House: HWANGDBS | Price Call: BUY | Target Price: 10.40 |
Data from the Malaysian Palm Oil Board (MPOB) showed July 2011 crude palm oil (CPO) output growth slowed for the second consecutive month in Malaysia, coming in at 1.751 million tonnes. Yield improvements in most peninsular states were mainly offset by weaker Sabah numbers. Conversely, exports grew 9% month-on-month (m-o-m) to 1.729 million tonnes led by stronger Chinese and European demand, but partly offset by lower shipments to India and Pakistan. Coupled with a 40% higher domestic consumption m-o-m, end-stock fell to 1.996 million tonnes, slightly lower than expected.
Despite the bullish undertone, we expect CPO prices to remain under pressure over the next two months. This season's harvest has yet to peak in August at 1.836 million tonnes (+4% m-o-m); it will only gradually ease from October onwards. And we see limited m-o-m export growth in August (+2%) and September (+5%), which will not be enough to reduce inventories from current levels. Based on these expectations, stock/usage ratios are likely to increase to 11.4% in August and September from circa 10.7% at end-July.
Year-to-date, regional plantation stock prices have generally outperformed CPO prices; although the recent drop in share prices has erased some of this. This is likely to continue a little longer as current negative sentiments in global equity markets may drag down plantation stock prices in the near term.
We believe names such as Singapore listed First Resources Ltd, TSH Resources Bhd and Sime Darby Bhd should be collected on dips as relative to peers, they have lower cost structure, stronger volume growth and diversified business models.
We continue to like Wilmar International Ltd amid the current strong spot processing margins for palm oil, bottoming out of soybean crush margins and seasonally higher 2H11 volumes. The recent increase in cooking oil prices has helped to alleviate some concerns, and we see tremendous potential for restocking in China as soybean and palm oil prices ease. This should drive Wilmar's 2H11 volumes. ' HwangDBS Vickers Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2011.
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