17/11/05 (The Star)  -  Plantation shares may consolidate in the short term after their recent price rally on Bursa Malaysia, commodity analysts say. But they add that whether that happens depends on the direction of crude palm oil (CPO) prices, as well as exports and stock levels over the next two months.

“Most plantation stocks had run ahead of their fundamentals during the recent rally, despite the CPO price having yet to breach the RM1,500-per-tonne level, on the back of high stockpiles and lacklustre exports in October,” an analyst said.

He said most plantation stocks tracked by analysts had, over the past six months, almost reached their 2005 valuations, with prices increasing by 40% to 50%.

And this was reflected in the Kuala Lumpur Plantation Index, which has increased 20% so far this year. The price of CPO, on the other hand, has moved up only 6%. (The spot CPO is currently trading between RM1,400 and RM1,410 a tonne.)

The analyst noted that the sharp rally in the plantation stocks was mostly news-driven, particularly the growing biodiesel initiatives globally and the anticipated rise in demand for palm oil to the trans-fatty acid and genetically modified organism (GMO) issues in Western countries.

In the short term, he said, further profit-taking was likely in IOI Corp Bhd, with select rotational play on laggards like PPB Oil Palms Bhd and Kuala Lumpur Kepong Bhd.

IOI Corp shares, which peaked at RM13.80 on Nov 7, closed at RM12.50 yesterday. The stock was one of the top gainers with 1.7 million shares changing hands.

 
PPB Oil Palms finished eight sen higher at RM5, after reaching a high of RM5.20 and a low of RM4.92.

Avenue Securities, which is neutral on the plantation sector, believes the recent “outperform” by most plantation stocks reflected the anticipated higher CPO prices next year.

Its analyst Keith Wee said: “We are maintaining our CPO price estimates for next year at RM1,550, given the seasonally weak production period in the first four months, with lower fresh fruit bunches yield stemming from the tree stress factor, resulting in an estimated 10.7% year-on-year rise in the average CPO price next year.”

Mayban Securities is also maintaining its average CPO price target at RM1,400 per tonne this year and RM1,500 for 2006.

The brokerage, which has an overweight rating on the sector, prefers pure upstream planters as “they are most leveraged on firmer palm oil prices.”

Pure plantation players were excellent proxies for the growing biodiesel industry, amid high crude oil prices and moves to reduce greenhouse gas emissions by countries that had signed the Kyoto Protocol, it added.