Plantations Weekly Review: 12th – 18th January 2009

January 20, 2009 at 12:36 am Leave a comment

• Sustaining above RM1,800
CPO prices held strong above the RM1,800 level last week and futures prices even closed at RM1,964 on Tuesday after a positive set of MPOB stats were announced where production declined by 10.6% marking the beginning of the production down-cycle that should last until May or June. Besides that, with the 18.2% surge in exports, stock levels eased by 12% much to the relief of the industry. Besides that, no major news on the industry was seen except for KLK reselling a plot of land back to the previous owner of LPF. While the move is odd we think, we believe there lies property development opportunities for that parcel of land. Otherwise, should it not be sold, we calculated that based on the selling price of RM21k per acre, it could translate into a CPO price expectation of above RM2,000. Do refer to our report on KLK dated 15th Jan for our postulation.
• December exports a once-off event
M-o-m exports surged ahead In December driven by India which saw some 197% increase in exports. We believe this to be due to pre-stocking activities towards the implementation of import tax on palm oil. This could also be in reaction to the import tax imposed on soy that was put into place in November. That said, we consider export numbers over December to be a bit of an anomaly and continue to expect choppy export numbers throughout 1H09 given slowing growth in major importing countries. In fact, cargo surveyor Intertek has already reported a drop in exports for the first 10 days of January.
• Maintain Overweight.
With December statistics announced, we can see that the industry is on a clear path to healthier times after a major oversupply situation. Also we believe that it is because of this, CPO prices have been diverging with crude oil prices in recent weeks. We maintain overweight on the sector with our top picks being Asiatic and Sime. Also, we keep a close eye on IOI should it fall to more desirable levels to accumulate and similarly so for KLK.

CPO and crude oil diverged a little more during the week. We believe this to be the case because while CPO fundamentals are improving, crude oil fundamentals are not given the continued concerns on demand. Looking at stocks, some profit taking was seen on the recent run up of stocks like IOI and KLK but otherwise we believe the declines to be due to general market weakness. No major corporate exercises were seen during the week but for IOI announcing a 3sen dividend.

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Oil & Gas Weekly Review: 12th – 18th January 2009 Property Weekly Review: 12th – 18th January 2009

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