Sector Update
- We came away from the first day of the 2010 POC (Palm and Lauric Oils Conference) with a “bullish vibe”,as three of the speakers who made price forecasts had relatively bullish expectations, projecting CPO prices to cross the RM3,000/tonne mark this year.
- We admit most of the price forecasts given today were slightly more bullish than our expectations. While we believe it is possible for CPO prices to touch or cross the RM3,000/tonne mark, based on the current bullish momentum, we do not discount the potential for prices to fall back down in the normal seasonal peak period in 2H2010, assuming normal weather conditions. We believe Dorab Mistry’s projection for stronger CPO prices in 2H2010 would only come through if the impact of El Nino on production is relatively severe. As such, we maintain our average CPO price assumptions of RM2,500/tonne for 2010 and RM2,700/tonne for 2011. YTD average spot prices of CPO of approximately RM2,550/tonne is in line with our projection, which assumes stronger CPO prices in the first half of the year versus the second half, following the CPO production cycle.
- No change to our earnings forecasts. We maintain our Overweight stance on the sector as a whole and reiterate our recommendation for investors to stick with the more liquid stocks given the anticipated volatile market conditions in 2010. We maintain our Outperform recommendations on IOIC, KLK, Sime Darby and CBIP, and Underperform recommendation on Genting Plantations and IJMP.
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