01/08/2012 (The Sun Daily) - Analysts see the move to raise the country's tax-free crude palm oil (CPO) shipping quota this year as positive for upstream players but negative for the downstream sector due to tighter CPO supplies.

Inter-Pacific Research believes that the move can reduce CPO stockpiles in the country as planters enter a seasonally higher production period in the second half of the year.

"Inventories are likely to decline (as a result of the move) and this will provide support for CPO prices in the short term. This would be positive for upstream players but negative to downstream due to tighter CPO supplies," it said in a note to clients today.

It has a "buy" rating on TSH Resources Bhd and TDM Bhd, with target prices of RM2.99 and RM5.51, respectively.

Reuters had on Monday reported that Malaysia will be increasing its CPO export quota by two million tonnes this year.

PublicInvest Research said the move will encourage more exports despite a slowdown in major consuming countries.

"In the July 1-25 period, Malaysian exports declined 18.6% compared with the preceding month due to poor demand in Asia.

"We see the potential move effectively spurring more demand from Malaysian exports, thanks to the tax exemption," it said.

PublicInvest is maintaining its "outperform" rating on Genting Plantations Bhd, Felda Global Ventures Holdings Bhd and Sime Darby Bhd at target prices of RM10.09, RM5.44 and RM11.21, respectively.

Alliance Research expects the move to further boost CPO prices as it would help to keep exports in positive territory for the year and also maintain strong momentum of exports to India.

"We view the move positively as it would help serve Malaysia's second-largest export market, India, which had recently announced that it is raising the import duty on refined palm oil starting November. Malaysian exports to India are up 81% year-on-year and this will help keep the momentum going for the rest of the year.

"In the interim, we expect CPO prices to continue its weakness as the festive season typically sees slower exports after a period of restocking. However, after this period, we expect prices to trend up on strong demand and weak production," said Alliance, reiterating an "overweight" call on the plantation sector, with Sime Darby and IJM Plantations Bhd as its top picks.