Friday August 13, 2004 - AMRESEARCH has maintained its earnings forecastand hold'' recommendation on PPB Oil Palms Bhd despite the tendency forthe company to be affected by the downtrend in crude palm oil (CPO) pricesdue to its pure plantation exposure.

The research house said it does not believe that the stock warranted asell due to its attractive dividend payouts.

It said based on a recent company visit, the PPB Oil Palms management hadindicated that the company had a policy of paying dividends of up to 50%of net profit.

The company has been giving a gross payout ratio of 53% in the past twoyears. An analyst with AmResearch said: Based on our net profit forecastof RM155.9mil this year and a payout ratio of 50%, the gross dividend pershare will roughly be 18 sen.

Meanwhile, the PPB Oil Palms management is not particularly bearish on theprospects of CPO prices. They believe prices should sustain above RM1,400per tonne for the rest of the year, the analyst said.

He said although the management did not have a specific price target nextyear, it believed that prices would not plunge to the average low of RM705per tonne seen in 2001.

The management view, he said, was premised on the strong likelihood thatIndia would step up its palm oil purchase in the coming months as thedrought had adversely affected the country’s harvest of edible oilseeds.

Hence, the pick-up in Indian demand should be enough to absorb theseasonally higher local CPO production envisaged during the second half ofthis year, he added.

The management also thinks that even if the US records an increase insoybean crop this month, CPO prices should not be significantly affectedas the higher soybean production would only be making up for theshortfalls in production from the previous two months.

The analyst said PPB Oil Palms had sold forward almost all its CPOproduction with a balance of 10% to 20% of production to be sold duringthe fourth quarter. The average selling prices achieved for the first halfof this year and the third quarter were RM2,000 and RM1,800 per tonnerespectively.

If CPO prices hover above RM1,400 per tonne in the fourth quarter, thenthe management expects the average selling price to range between RM1,600and RM1,700 per tonne this year, which is within AmResearch’s expectationsof RM1,650 per tonne.

PPB Oil Palms has forecast a fresh fruit bunches production of 1.27million tonnes this year, a 10.4% growth year-on-year by an average yieldof 20 tonnes per hectare and between 9% and 11% increase in maturehectarage of 5,000ha to 6,000ha.

The group’s total capex including plantation expenditure is estimated atRM165mil this year and RM104mil next year.