Palm oil inventory declines on exports jump
'''' Palm oil inventory in Oct 11 declined by 1.6% mom to 2.1m tonnes, mainly on the back of a 19.0% mom jump in exports that more than offset: (1) A 2.1% mom increase in production; and (2) A 3.1% mom decline in domestic consumption.
'''' Production in Oct 11 rose by 2.1% mom to 1.91m tonnes from 1.87m tonnes in the previous month, as previous month's output was dragged by Ramadhan season.
'''' Despite the recent uptrend in CPO prices, we are keeping our average price assumptions of RM3,200/tonne and RM3,000/tonne in 2011 and 2012-13 respectively and we believe further upside to CPO prices will likely be capped, as:
1.'''' La Nina event (if it does form), will likely be weaker relative to the previous La Nina event (2010-11);
2.'''' CPO price's discount against soybean oil has narrowed and this may result in demand rationing by certain price sensitive consuming countries. This, coupled with potentially slower exports to China, India and Pakistan in the coming months will offset lower palm oil supply; and
3.'''' The current global economic headwinds will likely remain a long-drawn issue, in our view, and this may curb demand for palm oil, and hence palm oil prices
'''' We also note that valuations of Malaysian planters (in particular, the larger planters) remain at a premium to the Indonesian planters, despite Malaysian planters' weaker earnings outlook at the downstream segment.
'''' Maintain Neutral on the plantation sector. Top picks are TSH Resources and Tradewinds Plantation.''
''
AirAsia (BUY)
AirAsia "Ancillary Day"
'''' AirAsia organized "Ancillary Day", to assist investors in understanding its ancillary income stream and its potential moving forward, leveraging on its expanding passenger base, efficient IT system and strong brand name.
'''' YTD, ancillary income contributed 20.6% of total revenue, translating into RM50/passenger. Management aims to achieve RM60-65/passenger or 23-25% of total revenue in the medium term. Aside from boosting ancillary income, it also aims to further reduce its average cost/passenger.
'''' Ancillary income is expected to contribute significantly to its bottomline and provide strong protection against increase in jet fuel price.
'''' Continuous expansion plan with new hubs and destinations are expected to maintain strong customer base for AirAsia's ancillary income.
'''' Maintain BUY and TP of RM4.50 based on SOP.
''
UM Land (BUY)
Acquires land in Johor Eastern Corridor
'''' UMLand is acquiring 332.7 acres of freehold land in the Eastern Corridor of Iskandar Malaysia for RM62.7m, or RM4.33 psf.'' We regard this as reasonable given Mah Sing paid RM6.10 psf for their land near Tanjung Pelepas Port in Apr 2011.''
'''' UMLand intends to develop a mixed township with affordable/mid-end housing, to be launched in 2H 2012 and developed over a period of 5 years.
'''' Details such as GDV, product prices to be finalised later.
'''' We maintain our forecast numbers and RNAV for the time being, pending more concrete details regarding the project.'' Maintain BUY with PT of RM1.61 (65% discount to RNAV).
''
Performance of IPI (Sep 2011)
'''' IPI grew by 2.5% yoy in Sep (Aug:'' +0.5% yoy), broadly in line with the consensus estimate of 2.6%, and was driven by stronger manufacturing and electricity performance offsetting a contraction in mining output.''
'''' Similar to the export trend, E&E output growth turned around to +3.4% yoy (Aug: -3.6% yoy), buoyed by stronger expansion of semiconductors and AV products.
'''' We fine-tune our estimate for 3Q GDP growth to 4.7% (previously 4.5%) due to the stronger-than-expected manufacturing growth. Meanwhile, we retain our 2011 GDP forecast at 4.6%.
'''' For 2012, we expect GDP growth to remain stable at 4.5% as softer manufacturing performance is cushioned by the bunching of construction projects.
'''' We see BNM holding the OPR steady at 3.00% until end-2012 as the policymaker focuses on growth agenda given the recent external developments while inflation is on moderation trend.
''
KLCI: Weakening technical readings
'''' Technical outlook has weakened as KLCI was unable to break the stiff resistance zones at 100-d (now 1490) and 200-d (1509) SMAs, as well as falling below the immediate support of 10-d SMA (1477). Further breakdowm below mid Bollinger band (1461) means that the current rally is likely to be disrupted, spurring more selldown towards 30-d SMA (1436) pts.
''
DJIA: Crucial neckline support near 11600
'''' Dow's technical outlook also deteriorated lately following the massive plunge of 389-pt on 9 Nov. Immediate resistance levels are 200-d SMA (now at 11975) and upper Bollinger band (12308). For supports, a breakdown below this neckline support level will trigger more selldown towards 50-d SMA (11439) and lower Bollinger band (11371).
