Plantation – Take a little profit

January 6, 2009 at 8:10 am Leave a comment

• Sudden swift recovery.
Much to our delight, the past few trading sessions have been a good start to the new year for plantation counters under our coverage (except for KLK which we have yet to officially initiate). In fact, IOI as of yesterday has more than surpassed our RM3.90 TP and Kim Loong has hit our RM1.70 expectation. Meanwhile Asiatic is closing in on our highest-in-the-market RM5.00 TP, and Sime recovered faster than it has in months.
• CPO prices recovering past RM1800.
Share prices have been taking a cue from CPO prices and given an extended boost from positive market sentiments. CPO futures, as of yesterday’s close, powered past the RM1800 level and are heading in the direction that we expect. There could be volatility ahead however (at least in 1H09) as we had indicated in our sector piece issued on 8 Dec 2008 given uncertainties in export markets that could slow the easing of stock levels. However, the high level of open interest on the futures trading indicates that CPO prices should continue to steadily trade up, for a while at least.
• IOI – SELL into strength, Kim Loong and Boustead downgrade to HOLD.
IOI has been one of the top picks in our coverage since we upgraded the stock to a BUY in October last year. Share price has far exceeded our RM3.90 target and we see no reason to upgrade target prices yet or change our estimates hence we suggest selling into strength. Already, trading data on Bloomberg is already showing sellers outnumbering buyers as of yesterday which could be a sign of possible retracements. As for Kim Loong, we downgrade the stock to a HOLD after our recent upgrade last week following its 3Q09 results. Boustead’s call is
also revised to a HOLD as there is only 6.4% upside to our RM3.80 TP.
• Maintain BUY on Asiatic, Sime & TSH.
Considering that some upside has been taken out, we now focus on other companies in our coverage which still show upside. We bring Sime Darby out into more prominence and reiterate our BUY on the stock with a TP of RM6.40 citing an 11% upside. As for Asiatic, it too appears to be reaching our RM5 target and shows remaining upside of 17.4% hence we maintain BUY with a lean towards eventual profit taking. Currently, newly-included KLCI component TSH Resources shows the most upside at 45.6% but we do not place it as our top pick given poor liquidity on the stock. We believe more trading opportunities will arise in coming months and maintain OVERWEIGHT on the sector.

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6 January 2009 Newz Bits 7 January 2009 Newz Bits

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