Plantations (Neutral) - Inventory declines to 7-month low

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD

Research House: HLG

Price Call: BUY

Target Price: 6.25

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING

Research House: HLG

Price Call: BUY

Target Price: 3.16

Plantations (Neutral)

Inventory declines to 7-month low

• Palm oil inventory in Mar 12 declined by 5% mom to 1.96m tonnes mainlydue to a 10.8% mom increase in exports and a 78.4% mom decrease in imports,which altogether more than offset a 2.1% mom increase in production.
• Exports rose by 10.8% mom to 1.34m tonnes in Mar 12, mainly due to asharp increase in exports to India,Egypt, Netherlands, Singapore,United States, Pakistan and Japan.
• Given the current high CPO price and tight supplysituation for vegetable oils (which will likely result in CPO price beingsustained), we are raising our average CPO price assumption in 2012 by RM100 toRM3,100/tonne.
• We are raising our FY12-13 net profit forecasts forplantation companies under our coverage by 0.3-17.2%. We are also taking thisopportunity to rolling forward as we kept our P/E multiples unchanged.
• Consequently, TPs for plantation stocks under ourcoverage are raised by 1.2-18.8%.
• Despite the upward revision in both our net profitforecasts and TPs, we are keeping our Neutral stance on the sector givenour less optimistic view on the downstream segment's fortunes in Malaysiaas well as the expectations of rising production ahead, which will weigh downon CPO prices.
• KLK and IJMP ratings upgraded from Sell to Hold but top picks remainTradewinds Plantation (BUY; TP: RM6.25) and CBIP (BUY; TP: RM3.16).

Source: HLIB Research - 12 April 2012

Plantations (Neutral) - Inventory rises for the first time since Sep

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING

Research House: HLG

Price Call: BUY

Target Price: 3.03

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD

Research House: HLG

Price Call: BUY

Target Price: 5.04

Plantations (Neutral)
Inventory rises for the first time since Sep

• Palm oil inventory in Feb 12 rose by 2% mom to 2.06m tonnes (for the first time since Sep 11), mainly on the back of: (1) A 12.6% mom decline in exports; and (2) A 42.2% mom decline in domestic consumption, which altogether more than offset a 7.9% decline in production. 
• Exports fell by 12.6% mom to 1.21m tonnes in Feb 12, mainly due to decline from Egypt (-64.4%), Singapore (-8.8%), United States (-19.4%), Pakistan (-69.7%), Netherlands (-16.7%); partially mitigated by higher exports to China (+39%) and India (+2.6%). We believe the decline in exports was partly due to the delay in the issuance of tax free palm oil export quotas, which started only from 7 Feb onwards. This, coupled with lesser working days for the month may have resulted in less CPO being exported.   
• We are keeping our average CPO price forecast of RM3,000/tonne for 2012 as we believe: (1) CPO price will likely weaken once La Nina subsides (expected by mid-2012); (2) The current global economic headwinds may curb demand and prices of palm oil; and (3) Production recovery, expected to begin by March.
• Top picks are CBIP (BUY; TP: RM3.03) and Tradewinds Plantation (BUY; TP: RM5.04).

Source: HLIB Research 13 March 2012

Hong Leong: 'Neutral' call on plantation stays

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING

Research House: HLG

Price Call: BUY

Target Price: 3.03

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD

Research House: HLG

Price Call: BUY

Target Price: 5.04

Hong Leong Investment Bank (HLIB) is maintaining its 'neutral' stance on the plantation sector given the unattractive valuation, in particular, the bigger plantation players relative to their regional peers.

In a research note today, HLIB said although Malaysia started as a leader in palm biodiesel, its production growth underperformed the global diesel output, in particular, Colombia, Thailand and Indonesia.

"This is due to weaker cost competitiveness because of duty differential disadvantage against Indonesia and Argentina that has impaired its price competitiveness in the export market," it said.

It said another factor was the slow pace of B5 implementation.
An industry expert believed that several measures were required to ensure higher biodiesel consumption locally, it said.

Meanwhile, HLIB said it would keep average crude palm oil (CPO) price forecast of RM3,000 a tonne for this year, at the lower-end of the projected price range of RM3,000 to RM4,500, for three reasons.

It said the CPO price would likely weaken once La Nina subsided (expected by mid-2012).

"The current global economic headwinds may curb demand and prices of palm oil and the CPO production recovery is expected to begin this month," it said.

HLIB said the CPO prices would be supported by the lower-than-expected soyabean yield, resulting in higher soyabean prices, hence boosting prices of CPO.

It has put a 'buy' call on CB Industrial Product Holding Bhd and Tradewinds Plantation Bhd with target prices of RM3.03 and RM5.04, respectively. -- BERNAMA

HLIB Research 11 Jan 2011 (Plantations; Economics; Traders Brief)

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD

Research House: HLG

Price Call: BUY

Target Price: 5.04

Stock Name: TSH
Company Name: TSH RESOURCES BHD

Research House: HLG

Price Call: BUY

Target Price: 2.13

Plantations (Neutral)

Inventory declines further in Dec 11

'''' Mom, Palm oil inventory in Dec 11 declined by another 1.5% to 2.04m tonnes, on an 8.2% decline in production that more than offset: (1) A 45.4% increase in imports; (2) A 4.5% decline in exports, and (3) A 22.7% decline in domestic consumption.

'''' Production in Dec 11 declined by 8.2% mom to 1.49m tonnes (Peninsular: -13.1%; East Malaysia: -2.2%), as production cycle (which seasonally weakens from Oct until Jan/Feb) coupled with La Ni''a (that results in higher rainfall) affected harvesting of palm oil. Exports declined by 4.5% to 1.59m tonnes, led by'' most major importing countries (see Figure 3)''

'''' Yoy, palm oil inventory rose by 26.2% to 2.04m tonnes mainly on higher imports and production, coupled with lower domestic consumption that more than offset lower opening stocks and higher exports. ''

'''' Despite our bullish view on the near-term CPO prices (which we believe will likely sustain at above RM3,100/tonne until La Nina subsides), we are keeping our average CPO price assumption of RM3,000/tonne for 2012.

'''' We are keeping our Neutral stance on the sector.

'''' Top picks are Tradewinds Plant (BUY; TP: RM5.04) and TSH Resources (BUY; TP: RM2.13).

''

Performance of IPI (Nov 2011)

'''' IPI grew by 1.8% yoy in Nov (Oct:'' +2.9% yoy), lower than the consensus estimate of a +3.5% expansion. The moderation was due to softening of manufacturing output growth (+4.0% yoy; Oct: +6.3% yoy) which was affected by sustained weak E&E performance and a sudden decline in the output of refined petroleum.

'''' Electricity output expanded at a stronger pace of 2.9% yoy (Oct: +1.9% yoy) while mining output declined at a slower rate of 4.2% yoy (Oct: -5.7% yoy).''

'''' We maintain our full year 2011 GDP estimate at 5.1%, factoring in 4Q estimate of 5.0% (unchanged). We also maintain 2012 GDP growth forecast at 4.5% in 2012 as the bunching of construction projects is expected to cushion the softer manufacturing performance.

'''' We expect BNM to hold the OPR steady at 3.00% until end-2012 given the resilient economic growth with sticky inflation.

''

KLCI: Taking cue from positive Wall St and Europe markets

'' While bigcaps continue to consolidate, second and lower liners continue to hog the limelight following the lifting of trading designation on Harvest and rash of M&A news. Today, KLCI is expected to retest 2011's close of 1530, taking cue from positive Wall St and European markets overnight. Immediate supports are 10-d SMA and 200-d SMA whilst upside targets are the huge gap within 1529-1546 dated 5 Aug 11.

Dow Jones: Uptrend still intact

'' YTD, the Dow jumped 2% and the early "January effect" inspired hopes that U.S. markets were beginning to overcome headline risk from the European debt crisis and moving toward a more independent track.

'' Despite the massive rally since Nov 11, overall market is not excessively overbought as RSI is still hovers below 70. Following the positive ascending triangle breakout, current uptrend remains intact as long as the Dow is able to maintain its posture above 10-d SMA (now at 12339) and uptrend line supports.

'' Immediate resistance targets are upper Bollinger band near 12600 and Jul 11 high of 12753.

HLIB Research 5 October 2011 (Plantations; TWSP; Traders Brief)

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD

Research House: HLG

Price Call: BUY

Target Price: 3.39

Plantations (Neutral)

Too early to turn positive

'''' Despite the recent downtrend in CPO prices, we are keeping our average CPO price assumptions of RM3,200/tonne in 2011 and RM3,000/tonne in 2012 and we remain positive on the sector's longer term outlook, underpinned by:

1. The possibility of La Ni''a returning has heightened supply risk, which in turn may will push CPO prices higher;
2. CPO's huge discount against soybean oil, which will in turn support both demand and prices of CPO; and
3. The peaking of palm oil production cycle (likely by Oct), which means lower supply and stockpile from Nov-11 onwards.

'''' However, we believe it is still pre-mature to turn bullish on the sector, given that:

1.'''' The potential further unwinding of speculative positions in the commodity assets and further quantitative easing will likely be insufficient to create additional liquidity that could in turn send commodity prices higher; and

2.'''' Comparatively, Malaysian plantation companies are valued at a premium to the regional players.

'''' In line with the recent sector de-rating in the regional plantation sector, we are cutting our target P/Es for plantation companies under our coverage by 1x from 10-15x to 9-14x.

'''' Following the cut in our target P/Es, TPs of the 5 plantation stocks under our coverage were cut by 3.8-10.1%. With the exception of TWS Plant (whereby recommendation was upgraded from Hold to Buy), our recommendations on Genp, IOI, KLK and Sime Darby remain unchanged at Hold following the cut in TPs

''

Tradewinds Plantation (Buy; TP: RM3.39)

A step closer to acquiring Mardec

'''' Prisma Spektra Sdn Bhd (a wholly-owned subsidiary of Tradewinds Plantation) has entered into and executed a novation agreement with the Government, the Minister of Finance and Semi Bayu Sdn Bhd for the novation of all Semi Bayu's rights and liabilities to Prisma Spektra. This means the acquisition of Mardec will be completed soon.

'''' Based on our earlier conversation with the management, the acquisition will enhance Tradewinds Plantation's earnings by RM17-18m p.a., equivalent to 7.3-7.7% of our projected 2012 core net profit of RM233.6m.''

'''' Earnings forecasts maintained for now, pending further update with management.''

''

FBM KLCI: Taking cue from the Dow

'''' Asian markets are likely to take the cue from the Dow's strong overnight late surge.

'''' Technically, indicators are still turning south but the formation of a Doji suggest that selling pressure may be subsiding and there is a potential technical rebound.

'''' Immediate resistance levels are the 1375 (5-d SMA), 1400, 1409 (mid Bollinger band) and 1430 (30-d SMA). Supports are situated at the psychological 1350, 1330 (lower Bollinger band), 1310 (26 Sep pivot low) and the other psychological 1300 level.

''

Dow: Piercing Line ' potential reversal pattern

'''' After yesterday strong late surge, the Dow's Candlestick has formed a Piercing Line formation, a potential reversal pattern.''''''

'''' Immediate resistance levels are 10941 (10-d SMA), the psychological 11k and 11,114 (mid Bollinger band) while support levels are at yesterday low of 10404, 10429 (38.2% FR ' from low in Mar 09 to high in May 11) and 10390 (74.6% FR ' from low in Jul 10 to high in May 11).

TWSPLNT - Overweight on plantations

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD
Research House: HLG

Plantations
Jan 18, 2011
Overweight, IOI Corp Bhd (Jan 18, RM5.98); Sime Darby Bhd (Jan 18, RM9.34); Tradewinds Plantations Bhd (Jan 18, RM3.45): Our call on plantations is 'overweight' and our top picks are IOI Corp ('buy', target price RM6.62); Sime Darby ('buy', TP RM10.76) and Tradewinds Plantations ('buy', TP RM4.60).

Key takeaways from Datuk Yeo How (president of Asian Agri Group, a leading private Indonesian palm oil group): Crude palm oil (CPO) price will average RM3,600 a tonne for 2011 (and has the potential of rallying beyond RM4,000 a tonne in the near term, albeit with greater price volatility relative to 2010).

Yeo's bullish outlook was underpinned by the record low inventory levels for several major oilseeds and grains due largely to adverse weather conditions; and strong demand outlook, with demand rationing by major oil consuming countries possibly not coming in to place.

He is of the view that the current high commodity prices will be cushioned by the record low inventory levels for several major oilseeds and grains (including soybean, sunflower oil and CPO). While the weak corn and soybean crop would have already been factored into the current high prices.

Yeo believes that soybean prices will soar higher should crops come in below expectations (which at the current juncture will likely to surprise on the downside) and hence result in higher CPO prices.

Beyond 1H11, while he believes that CPO output will recover from 2H11 onwards (which could potentially result in a much lower CPO price), it is important to note that the quantum of the crop recovery remains questionable. This will not soften CPO prices should crop recovery be weak.

Both demand and prices will likely strengthen post Chinese New Year as: (i) China will likely begin inventory replenishing post CNY given the low inventory level; and (ii) we will move away from seasonally weak demand during the winter months.

While there are concerns that skyrocketing commodity prices may result in demand rationing for CPO, Yeo believes that this is unlikely to happen at this juncture given that prices of other oilseeds have increased substantially as well.

Fundamentals aside, he believes that current high commodity prices are also supported by: (i) the flush of liquidity (he believes there is still room for financial demand to push CPO prices higher); and (ii) the weak US dollar (the inverse relationship between US dollar and CPO price).

For the downstream segment, while margins for the refining business will remain tight amid current high CPO prices, he believes that margins could still improve from 2011. As for the viability of biodiesel, Yeo believes mandates from various countries (promoting the use of biodiesel via subsidies) should help cushion biodiesel consumption despite it being still not economically viable on a free market basis.

The risks include: (i) Global vegetable oil (including CPO) production comes in higher than expected, which will result in lower than expected CPO prices; and (ii) demand rationing by certain oil-consuming countries (such as India) when vegetable oil prices skyrocket to a certain level, which would bring down consumption of vegetable oil.

While Yeo's 2011 CPO price forecast of RM3,600 a tonne is higher than our forecast of RM3,200 a tonne, we note that there is still plenty of upside to plantation stocks at current share price levels, as the five plantation stocks under our coverage (Genting Plantations Bhd, IOI Corp, Kuala Lumpur Kepong Bhd, Sime Darby and Tradewinds Plantations) are still trading at below two-year historical forward price-earnings mean. ' Hong Leong Investment Bank Research, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.