Maintain neutral: Production is up 6% month-on-month (m-o-m) as we move into the seasonal production months. While production in Peninsular Malaysia was flat, East Malaysian estates chalked up a growth of 15%.
Exports tumbled 18% m-o-m mainly as a result of lower exports to China (-44%) and Pakistan (-44%). The lower numbers from Pakistan were not unexpected given the higher base in July as a result of buyers holding off their purchases before the national budget which lowered import duties.
Year-to-date, exports up are 6%, underpinned by all-round growth except for India (-8%) and China (-3%).
Inventory surged 23%, mainly as a result of 18% lower exports and a 6% improvement in production. This is larger than the market’s expectation and the first since December 2009.
A crude palm oil (CPO) price uptick is likely to be more muted in the near term after having run up strongly from the RM2,500 per metric tonne levels to nearly RM2,700 per mt based on the three-month future and higher production ahead. Technically, we suspect the CPO will most likely remain range bound between RM2,500 and RM2,700 per mt for the short and medium term.
We maintain neutral on sector given its premium valuation and recent liquidity-driven price uptick. We call a “trading buy” on Sime Darby Bhd (TP: RM8.66), “hold” on Genting Plantations Bhd (TP: RM7.17) and KL Kepong Bhd (TP: RM18.70). We maintain a “trading sell” for IOI Corp Bhd (TP: RM4.80).— Kenanga IB Bhd Research, Sept 17
This article appeared in The Edge Financial Daily, September 20, 2010.
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