14/5/06 ( The Edge Daily)  - Most of the plantation stocks’ prices have already factored in the anticipated high crude palm oil (CPO) prices for the remainder of the year and 2007, analysts said.

Mayban Securities Research and Avenue Securities Research maintained their neutral stand on plantation stocks on the back of already fair valuations.

In a report on May 11, Avenue Research said: “We believe the strong performance of most plantation stocks over the past 12 months have reflected the anticipation of higher CPO prices in 2006 as valuations appear to be closer to historical high.”

It maintained its full year CPO price forecast of RM1,500 for this year and RM1,550 for 2007 on the back of an expected rise in CPO prices towards RM1,520 by end-2006.

Mayban Research said inventory declined for two consecutive months on the back of higher demand and this would impact on CPO prices.

It said other factors that could affect CPO prices were a month-on-month increase in oil production since January, which was very much against seasonal trends, and the 4.6% increase in export growth to China and the USA.

“We are maintaining a neutral on the plantation sector as we feel CPO prices will trade between 1,450 per tonne and RM1,550 per tonne averaging RM1,500 per tonne for 2006.

“Most plantation stocks are now trading between 15 times and 18 times price earnings, which we believe are fairly valued. Our top pick is Asiatic Development Bhd, which is trading below the average sector price earnings,” it added.

Avenue Research attributed rising CPO prices to a higher than expected global consumption for rapeseed and soya oil for biodiesel production in Europe and the US.

“The strong growth in global biodiesel capacity expansion coming onstream over the next two years, coupled with rising vegetable-based oil-fuelled electricity production could potentially wipe out the current global stock supply of the 17 major oils and fats.

“Consequently, we expect CPO prices to rise over the next few months as export trends continue to improve,” it added.
Avenue Research said despite stock levels declining 4.5% month-on-month, the industry scored a 5.4% rise in production volumes on the back of improving yields.