Cpo Price Assumption Raised
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Cpo Price Assumption Raised

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We raise our CPO price assumption to RM2,000/t (from RM1,600/t) ...

We raise our CPO price assumption to RM2,000/t (from RM1,600/t)
on the current high price of RM2,800/t and YTD RM2,178/t average.
We do not foresee CPO prices staying at current levels beyond 2Q due
to rising 2H production and slowing exports. The present CPO price is
81-123% above its long term historical price in USD and Ringgit
equivalents. EPS forecasts are upgraded by up to more than 100% but
company valuations remain stretched. Maintain Underweight.
Recent CPO price spike unsustainable. We view the recent 40%
spike to the RM2,800/t level from an average of RM1,950/t in 1Q09 as
too fast, too furious. Traders and speculators justified the high price on
tight inventory. We think a significant price correction in 2H is imminent
as inventory is expected to build up on slowing exports and stronger 2H
production. Also, the present CPO price is 81% and 123% above its 30-
year long term historical price in USD and Ringgit equivalents of
USD430/t and RM1,257/t respectively.
Bearish 2H price outlook. CPO production, which has disappointed in
1H09 due to poor weather and tree stress, is likely to rebound strongly
in 2H. Besides production recovery, narrowing palm oil discounts
against competing oils should slow exports. A return of normal weather
in the next planting season for South America, and increased trade
protectionism by the West on palm biodiesel are some of the other
bearish fundamental factors for CPO.
Earnings forecasts upgraded. With CPO price having averaged
RM2,178/t YTD and likely to remain high in 2Q on tight supply, we raise
our CPO price assumption from RM1,600/t to RM2,000/t for 2009-11.
This results in EPS upgrades for plantation companies under our
coverage ranging from 17% to over 100% for 2009-11.
Valuations remain expensive. We rate the sector Underweight.
Valuations remain stretched, especially for IOI and KLK which trade at
20.1x and 16.9x 2010 PER. We downgrade Asiatic to Sell (from Hold)
as the stock has soared 54% YTD and is highly leveraged on CPO
price swings. Sime has been raised to Hold (from Sell). Risks to our
price view are a weaker USD, higher energy prices, and further supply
shocks due to weather anomalies.

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Cpo Price Assumption Raised Cpo Price Assumption Raised Document Transcript

  • Equity Research PP11072/03/2010 (023549) Sector Update 21 May 2009 CPO price assumption raised; Plantations Valuations remain stretched Underweight (unchanged) We raise our CPO price assumption to RM2,000/t (from RM1,600/t) on the current high price of RM2,800/t and YTD RM2,178/t average. We do not foresee CPO prices staying at current levels beyond 2Q due to rising 2H production and slowing exports. The present CPO price is 81-123% above its long term historical price in USD and Ringgit Ong Chee Ting, CA equivalents. EPS forecasts are upgraded by up to more than 100% but ctong@maybank-ib.com company valuations remain stretched. Maintain Underweight. (603) 2297 8679 Recent CPO price spike unsustainable. We view the recent 40% spike to the RM2,800/t level from an average of RM1,950/t in 1Q09 as too fast, too furious. Traders and speculators justified the high price on tight inventory. We think a significant price correction in 2H is imminent as inventory is expected to build up on slowing exports and stronger 2H production. Also, the present CPO price is 81% and 123% above its 30- year long term historical price in USD and Ringgit equivalents of USD430/t and RM1,257/t respectively. Bearish 2H price outlook. CPO production, which has disappointed in 1H09 due to poor weather and tree stress, is likely to rebound strongly in 2H. Besides production recovery, narrowing palm oil discounts against competing oils should slow exports. A return of normal weather in the next planting season for South America, and increased trade protectionism by the West on palm biodiesel are some of the other bearish fundamental factors for CPO. Earnings forecasts upgraded. With CPO price having averaged RM2,178/t YTD and likely to remain high in 2Q on tight supply, we raise our CPO price assumption from RM1,600/t to RM2,000/t for 2009-11. This results in EPS upgrades for plantation companies under our coverage ranging from 17% to over 100% for 2009-11. Valuations remain expensive. We rate the sector Underweight. Valuations remain stretched, especially for IOI and KLK which trade at 20.1x and 16.9x 2010 PER. We downgrade Asiatic to Sell (from Hold) as the stock has soared 54% YTD and is highly leveraged on CPO price swings. Sime has been raised to Hold (from Sell). Risks to our price view are a weaker USD, higher energy prices, and further supply shocks due to weather anomalies. Sector Summary Table Company Rec Price New Old EPS (sen) EPS Grth (%) PE (x) Div Yield (%) 20-May TP TP (RM) (RM) (RM) 09F 10F 09F 10F 09F 10F 09F 10F Asiatic Sell (from Hold) 5.45 3.80 3.50 27.7 32.0 (43.9) 15.5 19.7 17.0 1.3 1.5 CB Ind Buy 2.69 3.60 2.70 44.7 44.9 1.4 0.4 6.0 6.0 5.5 5.6 HapSeng Cons Sell 2.50 2.05 1.85 19.2 22.8 (65.3) 18.7 12.7 10.7 4.3 4.3 IOI Corp Sell 4.64 3.50 2.70 23.0 23.1 (18.2) 0.4 20.2 20.1 2.0 2.3 KL Kepong Sell 12.00 9.80 7.40 73.2 70.8 (26.0) (3.2) 16.4 16.9 3.5 4.0 Sime Darby Hold (from Sell) 6.95 6.80 5.10 41.1 45.0 (16.4) 9.4 16.9 15.4 3.9 4.3 TH Plant’ns Sell 1.64 1.38 0.73 12.8 13.7 (25.7) 6.8 12.8 12.0 5.2 5.6 TW Plant’n Sell 1.97 1.20 1.20 8.4 11.0 (61.4) 30.9 23.5 17.9 1.3 1.7 Source: Maybank-IB
  • Plantation Sector Price correction imminent in 2H Recent price spike spurred by improved short term fundamentals. We view recent the spike in CPO price to the RM2,800/t level from an average of RM1,950/t (+40%) in 1Q09 as too fast, too furious. Traders justified the high price on tight Apr ‘09 inventory of 1.29m tonnes (last seen 22 months ago in Jun ’07). This was fuelled by strong exports and compounded by weaker-than-expected YTD production.  YTD production disappointed, but set to recover in 2H. Palm oil production disappointed in 1Q09 at 3.79m tonnes (-4% YoY, -21% QoQ) following poor weather and tree stress after a bountiful harvest last year. We expect 2H production to rebound strongly and inventory to build up quickly. The quick increase in inventory will also be aided by slowing exports due to the high CPO price.  “Cheap” CPO boosted exports. Exports in 1Q09 benefited from CPO’s huge discount to competing oils (see Chart 1). Exports jumped to 3.87m tonnes (+16% YoY, -10% QoQ) (see Table 1). And 1-20 May 09’s exports estimates by Intertek (ITS) and Societe Generale de Surveillance (SGS) remained relatively resilient (i.e. flattish) MoM as we believe these contracts mainly reflect CPO prices negotiated 2-3 months ago prior to the price run up. But set to slow. The sudden spike in CPO price of 40% over the last month is likely to cause buyers to rethink their purchasing decisions in the short term. CPO exports are also likely to slow as Indian stocks of imported vegetable oils (mainly palm oil) are at record high levels while China’s import and build up of “strategic reserves” (mainly soybean) will decline sharply from June. And, the overall macroeconomic situation continues to create demand uncertainties. Switching to slow as discount to soyoil narrows. Prior to CPO’s price run up from Feb-May 09, the average CPO price discount to soyoil between May ‘08 to Jan ‘09 was USD305/t when CPO inventory hit 2m tonnes in June 08 (see Chart 1 & 2). The discount to soyoil was huge relative to its historical average of around USD100/t which encouraged users to switch out of competing vegetable oils (i.e. soyoil and rape oil) to cheaper palm oil. In May ‘09, that discount narrowed to USD50/t (1M Futures) and USD100/t (3M Futures). Hence, we believe exports of CPO will slow. Table 1: Monthly Statistics for Jan-Apr 2009 Jan Feb Mar Apr MoM chg YoY chg 1Q09 QoQ chg YoY chg (tonne) (tonne) (tonne) (tonne) (%) (%) (tonne) (%) (%) Production 1,330,195 1,187,381 1,275,822 1,286,059 0.8 (3.1) 3,793,398 (20.9) (3.9) Import 29,863 27,423 15,693 42,579 171.3 (46.6) 72,979 (64.5) (53.5) Consumption 168,195 223,588 230,668 214,747 (6.9) 17.7 620,722 (3.4) 1.5 Exports 1,353,726 1,258,531 1,260,797 1,187,170 (5.8) (5.7) 3,874,783 (10.2) 15.7 Closing stock 1,832,847 1,565,532 1,365,582 1,292,303 (5.4) (27.8) 1,365,582 (31.5) (25.2) Source: MPOB, Maybank-IB 21 May 2009 Page 2 of 11
  • Plantation Sector Chart 1: Major vegetable oil prices vs. Crude Oil USD/t 1,800 1,700 Sweet Crude PalmOil 1mth 1,600 Rapeseed oil Soyoil 1mth 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 No v-06 No v-07 No v-08 Jan -06 Jan -07 Jan -08 Jan -09 Jul-06 Jul-07 Jul-08 May-06 May-07 May-08 May-09 Mar-06 Mar-07 Mar-08 Mar-09 Sep -06 Sep -07 Sep -08 Source: Bloomberg, Maybank-IB Chart 2: Monthly production, stock vs CPO price tonnes RM /tonne 2,500,000 Production Stock 4000 3500 2,000,000 3000 1,500,000 2500 2000 1,000,000 1500 1000 500,000 500 0 0 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 May-02 May-03 May-04 May-05 May-06 May-07 May-08 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: MPOB, Maybank-IB Speculative activities a double-edged sword. There are signs of speculative activities emerging on Malaysia Derivatives Exchange (MDEX) as volume and month-end open interest picked up again in recent months (see Table 2 & 3). CPO futures volume hit a new peak of 442,220 contracts in Apr ‘09 with 84,885 month-end open interest. We caution that these speculative positions are a double-edged sword as they could quickly reverse and result in sudden steep price corrections. 21 May 2009 Page 3 of 11
  • Plantation Sector Table 2: Crude palm oil futures: Market demography (by percentage) Category Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr '08 '08 '08 '08 '08 '08 '08 '08 '08 '08 '08 '08 ‘09 ‘09 ‘09 ‘09 Foreign Inst’n 21 19 21 23 23 22 20 18 18 18 16 19 21 19 21 23 Domestic Inst’n 15 12 14 14 11 15 13 13 14 16 16 21 15 12 14 14 Foreign Retail 1 1 1 0 1 1 1 1 1 1 1 0 1 1 1 0 Domestic Retail 36 39 40 35 35 35 36 42 42 38 36 38 36 39 40 35 Locals 27 29 24 28 30 27 30 26 25 27 31 22 27 29 24 28 Proprietary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Source: Bursa Malaysia Derivatives Table 3: Crude palm oil futures: Open interest Month Volume Month-End Open Interest Mar'08 328,741 43,624 April'08 240,709 39,679 May'08 147,828 39,534 June'08 198,086 44,053 July'08 267,300 54,911 Aug'08 278,401 54,316 Sept'08 305,241 67,141 Oct’08 309,186 90,065 Nov’08 242,097 91,506 Dec’08 188,081 82,136 Jan’09 246,490 83,949 Feb’09 261,615 87,413 Mar’09 314,774 88,926 Apr’09 442,220 84,885 Source: Bursa Malaysia Derivatives Huge built-up premium over LT price trend unsustainable. Long term investors should remain cautious at the present high CPO price, looking also at historical price trends (Table 4).  In USD terms, CPO price now trades at 81% above its LT price. The current price of around USD778/t (RM2,800/t) is 81% above CPO’s 30-year long run trend line of around USD430/t (FOB; RM1,550/t). Over the medium term, there is a tendency for prices to revert to the historical mean.  In Ringgit terms, CPO price is 123% above its LT price. If we are to consider CPO’s long run trend line based on MPOB’s Ringgit translated prices, the current CPO price of RM2,800/t is 123% above its 30-year average price of RM1,257/t. In the past 10 years, CPO’s average price has been lifted to RM1,607/t as the Ringgit weakened significantly against the USD post-Asian financial crisis.  Still expensive even with a 15% premium for global warming. We are cognizant that recent global warming (weather anomalies experienced in major producing countries) has the potential to disrupt supply and hence, increase price volatility. Assuming a 15% premium, the adjusted long term CPO is estimated to be USD500/t (RM1,800/t). Even at USD500/t, the current CPO price is still trading at a 56% premium to the adjusted long term CPO price. 21 May 2009 Page 4 of 11
  • Plantation Sector Table 4: Historical (30 years) average price of selected major oils (North West Europe) – USD per tonne CPO (FOB) CPO (CIF) Soy Sunflower Rapeseed Local Europe Oil Oil Oil RM / t USD / t USD / t USD / t USD / t 1979-2008 (30 yrs) 1,257* 488** 547 616 556 1989-2008 (20 yrs) 1,396 481 563 638 591 1999-2008 (10 yrs) 1,607 497 603 711 670 Present price 2,800 780 *1980-2008 average; ** 30 years’ CPO (FOB) basis is approximately USD430/t. Source: MPOB, Maybank-IB Chart 3: Annual Average Prices Of Oil Palm Products : 1979 - 2008 1,600 CPO CIF (USD/t) Soyabean Sunf lower 3000 Oil Oil 1,400 Rapeseed CPO Local (RM/t) - RHS Oil 2500 1,200 2000 1,000 USD/ tonne 800 1500 600 1000 400 500 200 0 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: MPOB, Maybank-IB Low stock-usage ratio vs. high CPO price argument, but current price already exceeds past prices. Despite significant crop damage due to severe drought in parts of South America, the global balance of 17 oils and fats remains reasonable with the stock-usage ratio at 10.9% (though this is expected to be revised downwards by Oil World in June ‘09). The world’s 17 oils and fats stock-usage ratio of 10.9% projected for Oct/Sep 08/09f is no worse than Oct/Sep 02/03 and 03/04 ratios of 10.7% and 10.4%. Yet, today’s prices are much higher at USD773/t for CPO and USD798/t for soybean oil, versus Oct/Sep 02/03 and 03/04’s average of USD398/t and USD460/t for CPO, and USD486/t and USD660/t for soybean oil (see Tables 5- 7). 21 May 2009 Page 5 of 11
  • Plantation Sector Table 5: 17 Oils & Fats – World Balance YE September (‘m tonnes) 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09F Opening stocks 15.3 14.1 12.9 13.8 15.5 17.1 16.6 17.4 Production 120.0 123.8 130.3 138.8 147.8 151.8 158.9 163.3 Imports 40.2 43.7 46.1 50.0 54.6 57.6 60.9 62.8 Exports 40.4 43.7 46.2 50.0 55.0 57.8 60.9 62.8 Disappearance 120.9 124.9 129.3 137.2 145.7 152.2 158.1 163.0 Ending stocks 14.1 12.9 13.8 15.5 17.1 16.6 17.4 17.7 Stock/usage ratio 11.3% 10.4% 10.7% 11.3% 11.7% 10.9% 11.0% 10.9% Current price Avg Palm Oil (RM/t) 1,230 1,513 1,747 1,406 1,449 2,193 3,174 2,800 Avg USDMYR rate 3.8000 3.8000 3.8000 3.7928 3.7042 3.5040 3.2836 3.6 Avg Palm Oil (USD/t) 324 398 460 371 391 626 967 778 Avg Soybean Oil (USD/t) 363 486 660 508 517 684 1,146 798 Avg Soybean Oil (USD/pound) 16.48 22.05 29.93 23.04 23.43 31.04 51.99 36.19 Source: Oil World (March 2009), Maybank-IB Table 6: Soybean oil – World Balance YE September (‘m tonnes) 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09F Opening stocks 3.1 3.17 2.91 2.90 3.45 3.98 4.17 3.59 Production 31.0 30.97 30.88 32.88 34.91 36.57 37.71 35.94 Imports 9.1 9.18 8.98 9.52 9.99 10.84 11.20 9.40 Exports 9.2 9.17 9.04 9.52 10.14 10.82 11.14 9.46 Disappearance 31.0 31.24 30.83 32.33 34.23 36.40 38.36 36.02 Ending stocks 3.0 2.91 2.90 3.45 3.98 4.17 3.59 3.44 Stock/usage ratio 9.7% 9.3% 9.4% 10.7% 11.6% 11.5% 9.3% 9.6% Source: Oil World (May 2009), Maybank-IB Table 7: Palm oil – World Balance YE September (‘m tonnes) 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09F Opening stocks 4.45 4.17 4.09 4.6 5.16 5.74 5.82 7.04 Production 25.0 27.74 29.86 33.26 36.18 37.76 42.48 44.48 Imports 18.7 21.65 23.40 25.94 28.05 29.45 32.90 35.22 Exports 18.9 21.58 23.47 26.20 28.13 29.63 32.85 35.33 Disappearance 25.2 27.90 29.29 32.43 35.52 37.50 41.32 45.19 Ending stocks 4.17 4.09 4.58 5.16 5.74 5.82 7.04 6.22 Stock/usage ratio 16.6% 14.6% 15.7% 15.9% 16.2% 15.5% 17.0% 13.8% Source: Oil World (May 2009), Maybank-IB Other reasons supporting CPO price correction:  Supply tightness may ease on normalized weather conditions during next planting season in South America. Oil World estimates that the recent drought that hit Argentina, Brazil, Paraguay and Uruguay possibly shaved around 20m tonnes of soybean production for Oct/Sep 08/09f (roughly 4m tonnes of soybean oil equivalent). Assuming a return of normal weather patterns in South America during the next planting season (2009 year end) boosts expectations of a strong production recovery, vegetable oil supply could be ample and prices (including CPO) could retrace quickly. 21 May 2009 Page 6 of 11
  • Plantation Sector  Trade protectionism 1 : “Splash and dash”, lowers demand for PME. Amid the uncertain macroeconomic situation, the US and EU nations are subtly imposing trade protectionism measures which affect palm biodiesel demand (read our “Trade protectionisms to hurt CPO demand” report on 12 Mar ‘09, for details on tariffs imposed by the EU on biodiesel imports from US (on the ‘splash and dash’ trade in US). About 1m tonnes of PME (palm methyl ester, mainly exported from Indonesia) said to have benefited from the “splash and dash” trade in the US, is at risk.  Trade protectionism 2: New sustainability criteria on GHG emissions further hampers PME exports. Meanwhile, a newly approved Renewable Energy Directive in Europe to reduce greenhouses gas (GHG) emissions may disadvantage Malaysian millers. The directive establishes new sustainability criteria for biofuel which, among others, must achieve GHG savings of 35% by Nov ‘10, rising to 60% in 2018. The default 19% value for PME set by the EU renders PME a non-sustainable biofuel. And in the US, a new US ASTM Coal Soak test effective Apr ‘09 could put regular PME exports to the US at a disadvantage. CPO price assumption raised; EPS forecasts upgraded Raised from RM1,600/t to RM2,000/t. We believe a CPO price correction is imminent in 2H as we anticipate CPO production to outpace exports, resulting in build-up of inventory. Nonetheless, with present tightness in inventory, the CPO price could be sustained at around RM2,500/t in 2Q before a steep price correction in 2H. Average YTD is RM2,178/t, but we anticipate a steep correction to below RM2,000/t in 2H. We therefore raise our CPO price expectation for 2009 to RM2,000/t (previously RM1,600/t). We also expect our new 2009 price average to sustain into 2010-11. Earnings forecasts upgraded between 17% to more than 100%. Pure plantation players are obvious beneficiaries given their high leverage to CPO price movements (see Table 4 and Appendix 1 for sensitivity analysis on net profit). Highest earnings upgrades are for Tradewinds Plantation and TH Palntations, while lowest upgrades are especially for KL Kepong and CB Industrial Product. Table 4: Sector Summary Table (Net profit upgrades) Company Rec Price Net profit forecast (Original) Net profit forecast (Revised) Changes (%) 20May (RM) FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 RM ‘m RM ‘m RM ‘m RM ‘m RM ‘m RM ‘m % % % Asiatic Sell 5.45 176.2 189.9 191.4 209.5 241.9 268.3 18.9 27.4 40.2 CB Ind Buy 2.69 46.0 46.8 49.0 61.5 61.8 64.1 33.8 31.9 30.8 HapSeng Cons Sell 2.50 78.3 96.8 98.2 108.3 126.8 128.2 38.3 31.0 30.5 IOI Corp* Sell 4.64 957.8 1,420.8 1,450.8 - - - - - - KL Kepong Sell 12.00 540.7 555.3 587.5 633.8 744.3 792.3 17.2 34.0 34.9 Sime Darby Hold 6.95 1,926.1 1,977.3 2,073.2 2,302.9 2,641.4 2,768.6 19.6 33.6 33.5 TH Plant’ns Sell 1.64 36.4 35.7 n.a 62.4 66.7 64.3 71.6 86.6 n.a TW Plant’n Sell 1.97 0.1 15.9 30.0 49.3 65.6 89.3 >100 >100 >100 Source: Maybank-IB, New CPO price assumption (2009-11:RM2,000/t (from RM1,600/t)), * revised on 18 May 09. 21 May 2009 Page 7 of 11
  • Plantation Sector Expensive valuations; Maintain Underweight Valuation remains expensive. Despite our earnings upgrades, we find the sector still expensive. IOI and KLK are our top Sells in the sector as they trade at 20.1x and 16.9x forward PER. We downgrade Asiatic to Sell (from Hold) as the stock had soared 54% YTD appreciation and is highly leveraged to CPO price swings. Sime has been raised to Hold (from Sell). Risks to our view are a weaker USD, higher energy prices, and further supply shocks due to weather anomalies. Recently, there has been talk of a possible return of El-Nino. Should this materialize in late 2009 or early 2010, CPO production could be negatively affected, taking CPO prices up. Table 5: Sector Summary Table Company Rec Price New Old TP EPS (sen) EPS Grth (%) PE (x) Div Yield (%) 20-May TP (RM) (RM) (RM) 09F 10F 09F 10F 09F 10F 09F 10F Asiatic Sell (from 5.45 3.80 3.50 27.7 32.0 (43.9) 15.5 19.7 17.0 1.3 1.5 Hold) CB Ind Buy 2.69 3.60 2.70 44.7 44.9 1.4 0.4 6.0 6.0 5.5 5.6 HapSeng Cons Sell 2.50 2.05 1.85 19.2 22.8 (65.3) 18.7 12.7 10.7 4.3 4.3 IOI Corp Sell 4.64 3.50 2.70 23.0 23.1 (18.2) 0.4 20.2 20.1 2.0 2.3 KL Kepong Sell 12.00 9.80 7.40 73.2 70.8 (26.0) (3.2) 16.4 16.9 3.5 4.0 Sime Darby Hold (from 6.95 6.80 5.10 41.1 45.0 (16.4) 9.4 16.9 15.4 3.9 4.3 Sell) TH Plant’ns Sell 1.64 1.38 0.73 12.8 13.7 (25.7) 6.8 12.8 12.0 5.2 5.6 TW Plant’n Sell 1.97 1.20 1.20 8.4 11.0 (61.4) 30.9 23.5 17.9 1.3 1.7 Source: Maybank-IB Table 6: Sector Summary Table (Valuation basis and foreign shareholdings) Company Rec Price New Old Valuation basis Remarks Foreign TP TP share- holding 20May (RM) (RM) % Big-caps (>RM2b) Sime Darby Hold (from 6.95 6.80 5.10 15x CY10 PER Relatively more resilient than other large caps. Though 12% Sell) earnings are diverse, other operations will inevitably be (Mar 09) affected by global slowdown – lower auto sales, slowdown in property sales, and slowdown in mining activities. IOI Corp Sell 4.64 3.50 2.70 15x FD CY10 A good proxy to CPO price upswing. IOI has locked in 90% of 25% PER FY09 production close to RM2,800/t and FY09 fertiliser (Mar 09) requirements. KL Kepong Sell 12.00 9.80 7.40 14x CY10 PER - 16% (Dec 08) Asiatic Sell (from 5.45 3.80 3.50 12x CY10 PER Almost a pure plantation player. Highly leveraged to price 7% Hold) (previously 11x swing. Net cash per share of approximately 70sen per share. (Mar 09) CY10 PER plus 70sen net cash per share) Mid-caps (RM600m-RM2b) Hap Seng Sell 2.50 2.05 1.85 SOP valuations Raised CPO forecasts by 25% to RM2,000 per tonne . 3.5% Cons’d (Mar 09) Tradewinds Sell 1.97 1.20 1.20 11x CY10 PER Significantly disadvantaged by its all-in (including depreciation 3.4% Plant (previously 0.5x and head office interest cost) high cost structure – least (Apr 09) BV) efficient among the plantation stocks we cover. Small-caps (<RM600m) CB Ind Buy 2.69 3.60 2.70 8x CY10 PER Rising CPO price to drive plantation and engineering 24% earnings. Expect order books for Modipalm to increase given (Sept 08) the strengthened CPO price. TH Plant’ns Sell 1.64 1.38 0.73 10x CY10 PER Pure plantation player. Highly leveraged to CPO price <1% movement. (Mar 09) Source: Maybank-IB 21 May 2009 Page 8 of 11
  • Plantation Sector Appendix 1 Asiatic - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Dec FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM5.45 Net Profit (RM ‘m) 156.8 176.3 241.9 268.3 327.0 360.4 FD EPS (sen) 20.7 23.3 32.0 35.5 43.2 47.6 PER 26.3 23.4 17.0 15.4 12.6 11.4 Source: Maybank-IB CB Industrial - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Dec FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM2.69 Net Profit (RM ‘m) 44.5 45.9 61.8 64.1 84.6 88.1 FD EPS (sen) 32.3 33.4 44.9 46.6 61.5 64.0 PER 8.3 8.1 6.0 5.8 4.4 4.2 Source: Maybank-IB HSC - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Dec FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM2.50 Net Profit (RM ‘m) 78.3 98.6 108.3 128.6 138.3 158.6 FD EPS (sen) 13.9 17.2 19.2 22.8 24.5 28.1 PER 17.8 14.4 12.9 10.9 10.1 8.8 Source: Maybank-IB IOI Corp - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE June FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM4.64 Net Profit (RM ‘m) 1,145 1,166 1,421 1,451 1,697 1,736 FD EPS (sen) 18.4 18.7 22.8 23.3 27.2 27.9 PER 24.9 24.5 20.3 19.9 17.1 16.7 Source: Maybank-IB Kuala Lumpur Kepong - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Sept FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM12.00 Net Profit (RM ‘m) 544.7 578.4 744.3 792.3 943.8 1,006.2 FD EPS (sen) 51.0 54.2 69.7 74.2 88.4 94.3 PER 23.5 22.1 17.2 16.2 13.6 12.7 Source: Maybank-IB 21 May 2009 Page 9 of 11
  • Plantation Sector Sime Darby - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE June FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM6.95 Net Profit (RM ‘m) 1,979 2,077 2,641 2,769 3,304 3,460 FD EPS (sen) 32.9 34.6 44.0 46.1 55.0 57.6 PER 21.1 20.1 15.8 15.1 12.6 12.1 Source: Maybank-IB TH Plantation - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Dec FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM1.64 Net Profit (RM ‘m) 31.9 29.8 66.7 64.3 101.5 98.8 FD EPS (sen) 6.5 6.1 13.7 13.2 20.8 20.3 PER 25.1 26.8 12.0 12.4 7.9 8.1 Source: Maybank-IB TW Plantation - Net Profit Sensitivity Analysis and PE valuation CPO price RM1,600/t RM2,000/t RM2,400/t FYE Dec FY10 FY11 FY10 FY11 FY10 FY11 Current Price = RM1.97 Net Profit (RM ‘m) (15.7) 2.3 65.6 89.3 146.9 176.3 FD EPS (sen) (1.9) 0.9 11.0 14.8 23.9 28.6 PER (101.8) 213.1 17.9 13.4 8.2 6.9 Source: Maybank-IB 21 May 2009 Page 10 of 11
  • Plantation Sector Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between -5% to 10% in the next 12 months SELL Total return is expected to be below -5% in the next 12 months Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. 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Published / Printed by Maybank Investment Bank Berhad (15938-H) (Formerly known as Aseambankers Malaysia Berhad) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, MaybanLife Tower, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com 21 May 2009 Page 11 of 11