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