Plantations Weekly Review: 10th – 16th November 2008

November 24, 2008 at 2:59 am Leave a comment

Plantations Weekly Review: 10th – 16th November 2008

• Short lived rebound
CPO prices, after a mild recovery, weakened again over the week with the last reported MPOB daily price at RM1,515 per MT. Prices continue to correlate strongly with crude oil prices (which declined) and poor MPOB
statistics with continued high stock levels probably urged things along. Looking into share prices, they were safely flat during the week and only IOI continued with some share buybacks. Some shareholder
announcements indicated that there was some buying of bigger cap plantation stocks by selected institutional funds as well as major shareholders.
• October Stats – there is hope yet
October’s MPOB statistics were announced during the week and data clearly showed that the industry was not out of the woods yet. Stock levels went up by some 6.9% due to a 4.6% increase in production coupled with slow growth in exports amounting to 3%. We do not see this situation prolonging for much longer and expect that CPO fundamentals will improve in coming months starting with a decline in production as
seasonality factors kick in. On this premise, we believe that CPO prices will start to see a recovery when stock levels (currently exceeding 2m mt) ease off some 300,000-500,000 mt/pa.
• News and views
During the week, Sime Darby said that they would acquire troubled plantations to expand their hectarage. Also, following the Government’s replanting plan, the Group said they would replant some 4% of hectarage.
To note, Sime has some RM1.1bn net cash in its coffers and have been talking about making a major acquisition for some months now. Besides this, biodiesel player Carotech snagged itself a 1 year biodiesel supply (60,000-84,000 mt pa) contract from Trafigura Beheer worth an estimated RM200m. The Group said that Trafigura had been a long time spot sales customer and this represents their first major contract. Estimated margins from the sales are 10-15% at EBIT level.
• Maintain Neutral on the sector for now. Top picks are IOI and Sime Darby. Also Sime 1Q09 results expected on the 26th and Asiatic on the 25th of November.

October MPOB stats – industry to make it out of the woods soon…

October’s MPOB statistics were announced during the week and data clearly showed that the industry was not out of the woods yet. Stock levels went up by some 6.9% due to a 4.6% increase in production coupled with slow growth in exports amounting to 3%. We do not see this situation prolonging for much longer and expect that CPO fundamentals will improve in coming months starting with a decline in production as seasonality factors kick in. Indeed this past peak production cycle has been robust indeed due to heavy planting done over the 2001-2002 period coupled with bouts of good weather for plantations. However, like every other peak cycle, it will end eventually as can be clearly seen in figure 2 below. On this premise we believe that CPO prices will start to see a recovery when stock levels (currently exceeding 2m mt) come off some 300,000-500,000 mt/pa.

Market Movements

Despite staging a mild recovery over the week before last, prices continued to weaken as crude oil prices flirted with the US$55 level. Strangely, soybean prices appeared diverged a little from the usual trend, widening the gap between CPO and Soy. Looking at figure xx, it isn’t the first time that soy prices have diverged hence we believe the underlying trend would continue to peg crude oil prices. As for CPO, we believe that the decline was further brought about by poor MPOB stats and likely more defaults/deferments seen in the industry as importers prioritise getting the best prices from the market.

Stock prices were well supported by bargain hunters and relatively unaffected by the weakness seen in CPO prices and crude oil during the week. Boustead recovered further after last week’s 8.6% jump while TSH recovered as well likely on a decent set of results announced the previous week.

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Property Weekly Review: 10th – 16th November 2008 Oil & Gas Weekly Review: 10th – 16th November 2008

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