Plantations Weekly Review: 5th – 11th January 2009
• Good start to the year
CPO futures prices recovered a good 10.3% over the week to close at RM1,920 per mt last Friday after trading pass the RM2,000 mark during the week. We understand this was largely due to the closing off of short positions put into place last year as indicated by the high level of open interest. Given that open interest levels are still quite high, CPO prices have the potential of trading up even further in the coming weeks we believe.
• News and Views.
Sime Darby during the week announced that it will start building a 3m mt palm oil plant with a total investment of USD$500m in Rizhao City, Shandong Province, North China. The project will be engaged in refining, processing, storing and selling palm oil and related products. This comes
as no surprise as the Group has long intended on expanding its downstream capacity to China. We believe that the move to have down stream operations China will also reduce the likelihood of contract defaults in the future as exports to China will be an inter-company transaction. This is a business model likened to that of IOI and KLK. Besides this, some 11k of small holders in Sabah will be privy to an RM50m govt allocation to aid in their estates while in Sarawak, planters would be relieved of some cess payments of RM4 and provided that supply of CPO is sufficient to meet local refining capacities, the excess will be allowed for export.
• Maintain Overweight.
During the week, given the strong performance of IOI Corp, we downgraded the stock to SELL as we felt its valuations had surpassed its fundamentals. Besides this, we also downgraded Kim Loong and Boustead to a HOLD given that upside to our target prices were below 10%. Following this, we recommend switching to Sime, Asiatic and TSH which still show a healthy amount of upside. To note, MPOB December statistics will be announced later on Monday.
Share prices generally rose during the week to mirror CPO price but profit taking was seen at large on Thursday and Friday. We believe there to be more trading opportunities abound in coming weeks.
Entry filed under: Business, Finance, Stock Market. Tags: 2009, Asiatic, Boustead, CPO futures prices, CPO prices, Good start to the year, IOI, IOI Corp, January, Kim Loong, KLK, MPOB December statistics, North China, Palm oil, plantations, processing, refining, Rizhao City, Shandong Province, Sime, Sime Darby, storing, TSH, weekly review.