MARKET DEVELOPMENT
Affin Remains Neutral on Plantation Sector
Affin Remains Neutral on Plantation Sector
11/10/2013 (The Star) - Affin Research has maintained its Neutral rating on the plantations sector based on the crude palm oil (CPO) forecasts of RM2,400/mt for 2013 and RM2,700/mt for 2014 to 2015.
In a note on Friday, it said soybean oil premium has narrowed to US$150/mt while valuation parameters applied by a cash-flushed market seem to remain generous compared to its current year 2014 price/earning targets of 11 times to 16 times.
“CPO production in Sept 2013 increased by 10.2% on-month to 1.91 million metric tonnes as the seasonal increase in fresh fruit bunches yields and oil extractions rates for Peninsular Malaysia, Sabah and Sarawak lifted oil yields,” it said.
It added year to date, the total CPO production increased by 4.1% to 13.2 million metric tonnes, 2.9% ahead of Malaysian Palm Oil Board’s (MPOB) forecast for nine months 2013.
It said MPOB’s full year 2013 forecast is 18.9 million metric tonnes, 0.6% higher than 2012 production.
“After recording a 7.6% on-month increase in Aug 2013, palm oil exports grew by a further 5.2% on-month and 6% on-year in Sept 2013 to 1.61 million metric tonnes. Year to date, total palm oil exports increased by 7.2% to 13.4 million metric tones,” it said
It added palm oil inventory increased to 1.78 million metric tonnes in Sept 2013.
“This is equivalent to 1.1 times of Sept 2013 exports. Based on MPOB’s CPO production forecasts for the remaining three months of the year and assuming the same on-month exports growth as in Oct to Dec 2012, palm oil closing stocks is likely to rise to 2.05 million metric tonnes in Nov 2013 (2013 high was 2.58 million metric tonnes in January) before declining again,” it said.
Affin said high plantation land prices implied by the recent Pontian United and Unico-Desa transactions point to valuation support for plantation companies with good land.
“Based on industry parameters, we expect the third quarter 2013 results of plantation companies to be higher on quarter, (significantly stronger output more than offsetting lower average selling price) but still significantly lower on-year (lower production and lower average sellin price),” it said.
In a note on Friday, it said soybean oil premium has narrowed to US$150/mt while valuation parameters applied by a cash-flushed market seem to remain generous compared to its current year 2014 price/earning targets of 11 times to 16 times.
“CPO production in Sept 2013 increased by 10.2% on-month to 1.91 million metric tonnes as the seasonal increase in fresh fruit bunches yields and oil extractions rates for Peninsular Malaysia, Sabah and Sarawak lifted oil yields,” it said.
It added year to date, the total CPO production increased by 4.1% to 13.2 million metric tonnes, 2.9% ahead of Malaysian Palm Oil Board’s (MPOB) forecast for nine months 2013.
It said MPOB’s full year 2013 forecast is 18.9 million metric tonnes, 0.6% higher than 2012 production.
“After recording a 7.6% on-month increase in Aug 2013, palm oil exports grew by a further 5.2% on-month and 6% on-year in Sept 2013 to 1.61 million metric tonnes. Year to date, total palm oil exports increased by 7.2% to 13.4 million metric tones,” it said
It added palm oil inventory increased to 1.78 million metric tonnes in Sept 2013.
“This is equivalent to 1.1 times of Sept 2013 exports. Based on MPOB’s CPO production forecasts for the remaining three months of the year and assuming the same on-month exports growth as in Oct to Dec 2012, palm oil closing stocks is likely to rise to 2.05 million metric tonnes in Nov 2013 (2013 high was 2.58 million metric tonnes in January) before declining again,” it said.
Affin said high plantation land prices implied by the recent Pontian United and Unico-Desa transactions point to valuation support for plantation companies with good land.
“Based on industry parameters, we expect the third quarter 2013 results of plantation companies to be higher on quarter, (significantly stronger output more than offsetting lower average selling price) but still significantly lower on-year (lower production and lower average sellin price),” it said.