MARKET DEVELOPMENT
Weakening Ringgit A Boon to Palm Oil and Timber Players
Weakening Ringgit A Boon to Palm Oil and Timber Players
03/08/2013 (Borneo Post) - The current weakening of the ringgit against the US dollar is said to be a boon for players in the plantation and timber sectors.
For plantation players, the ringgit’s depreciation has arguably encouraged more foreign demand for Malaysian palm products.
Alam Lim from Kenanga Investment Bank Bhd’s research division explained, “We reckon crude palm oil (CPO) prices which are priced in ringgit will be more attractive to major palm oil consumer countries currencies as oil palm based products become more competitive against other vegetable oils (which are mainly priced in US dollar and euro).”
This, Lim said, offers better fundamental impact to the planters.
“Typically, higher CPO prices translate to better share price performance and earnings for planters.
“However, we believe that investors may view the ratings revision news negatively across the equity market which may eclipse the shine of better CPO price prospects,” he opined.
“Nevertheless, we believe any potential sell-downs will be limited as plantation stocks are laggards against the FBM KLCI post-General Elections.”
To note, the ringgit has weakened by as much as eight to nine per cent over the last two months, dropping from a high of RM2.96 per US dollar in May to as low as RM3.225 per US dollar recently.
The currency weakness was exacerbated by Fitch’s recent downgrade of Malaysia’s sovereign debt outlook to ‘negative’ from ‘stable’, due to the deterioration of Malaysia’s current account surplus and trade balance.
For timber players, the boost is expected to be derived from the fact that all timber products are normally priced and exported in US dollar, outlined analyst Hoe Lee Leng from RHB Research Institute Sdn Bhd.
As an example, Hoe estimated that for every change of RM0.10 per US dollar, this will affect earnings of Sarawakian players Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd by 10 to 12 per cent per annum.
“We have thus revised our ringgit to US dollar exchange rate assumption in our forecasts to RM3.10 per us dollar for 2013, from RM3 oer US dollar previously, while leaving our RM3 per US dollar house assumption for CY14 unchanged,” the analyst added.
For plantation players, the ringgit’s depreciation has arguably encouraged more foreign demand for Malaysian palm products.
Alam Lim from Kenanga Investment Bank Bhd’s research division explained, “We reckon crude palm oil (CPO) prices which are priced in ringgit will be more attractive to major palm oil consumer countries currencies as oil palm based products become more competitive against other vegetable oils (which are mainly priced in US dollar and euro).”
This, Lim said, offers better fundamental impact to the planters.
“Typically, higher CPO prices translate to better share price performance and earnings for planters.
“However, we believe that investors may view the ratings revision news negatively across the equity market which may eclipse the shine of better CPO price prospects,” he opined.
“Nevertheless, we believe any potential sell-downs will be limited as plantation stocks are laggards against the FBM KLCI post-General Elections.”
To note, the ringgit has weakened by as much as eight to nine per cent over the last two months, dropping from a high of RM2.96 per US dollar in May to as low as RM3.225 per US dollar recently.
The currency weakness was exacerbated by Fitch’s recent downgrade of Malaysia’s sovereign debt outlook to ‘negative’ from ‘stable’, due to the deterioration of Malaysia’s current account surplus and trade balance.
For timber players, the boost is expected to be derived from the fact that all timber products are normally priced and exported in US dollar, outlined analyst Hoe Lee Leng from RHB Research Institute Sdn Bhd.
As an example, Hoe estimated that for every change of RM0.10 per US dollar, this will affect earnings of Sarawakian players Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd by 10 to 12 per cent per annum.
“We have thus revised our ringgit to US dollar exchange rate assumption in our forecasts to RM3.10 per us dollar for 2013, from RM3 oer US dollar previously, while leaving our RM3 per US dollar house assumption for CY14 unchanged,” the analyst added.