Plantation - No Positive Catalysts Ahead, More Cautious Short-Term Outlook - 30/6/2010

Downgrading sector, no short-term positive catalysts. We are downgrading our recommendation on the plantation sector to Neutral (from overweight) on the back of four main factors:
(1) onset of the peak palm oil production season which will dampen CPO prices in the near term;
(2) reduced possibility of an El Niño impact, although talk of La Niña has now started;
(3) potential impact of exchange rate movements and reduction in crude oil price forecasts; and
(4) valuations are no longer as attractive after rolling forward to CY11.

We believe there are not many positive catalysts which would move CPO prices up in the near term, and therefore expect plantation share prices to remain lacklustre until this changes.

Plantation - No Positive Catalysts Ahead, More Cautious Short-Term Outlook - 30/6/2010