MARKET DEVELOPMENT
Alliance Research ups IOI Corp Estimates, Higher Target Price
Alliance Research ups IOI Corp Estimates, Higher Target Price
13/12/2013 (The Star) - Alliance Research raised its estimates for IOI Corp as it sees a slightly more positive outlook on crude palm oil (CPO) prices going forward.
It had on Thursday raised its FY14-FY16 earnings by 6.4%-7.1% to reflect an upward revision of CPO average selling price (ASP) from RM2,400 a tonne to RM2,575-RM2,600 a tonne for the respective years.
“Despite the upgrade in earnings, we maintain our Neutral recommendation on IOI Corp with higher TP of RM6.09. IOI currently trades at a FY14 price-to-earnings (P/E) of 20.6 times which is on par with the group’s peak cycle long term average of 20.7 times. On this front, we view the stock fully valued,” it said.
Alliance Research expects average CPO prices to be higher on the back of more manageable inventory levels in CY14. Despite that, it expects sluggish palm oil exports due to ample supply of competing oilseeds.
On the flipside, it views that domestic consumption in both Malaysia and Indonesia for biodiesel use could help keep inventories in check during the year below 2.3 million tonnes.
“As there is no expectation of a bumper crop as well, we view that inventories will stay clear of the historical high of 2.65 million tonnes recorded in December 2012.
“Given these expectations, we are raising our sector CPO ASP for CY14 to RM2,600 a tonne from RM2,500 previously. We expect CPO prices to trend stronger in 1HCY14 as production dips as per seasonality.
“However, the weak export demand will keep prices from trending into the RM2,800 to RM3,000 zone and possibly bring prices to trend between RM2,500-RM2,700 during the 2HCY14 period,” Alliance Research said.
It had on Thursday raised its FY14-FY16 earnings by 6.4%-7.1% to reflect an upward revision of CPO average selling price (ASP) from RM2,400 a tonne to RM2,575-RM2,600 a tonne for the respective years.
“Despite the upgrade in earnings, we maintain our Neutral recommendation on IOI Corp with higher TP of RM6.09. IOI currently trades at a FY14 price-to-earnings (P/E) of 20.6 times which is on par with the group’s peak cycle long term average of 20.7 times. On this front, we view the stock fully valued,” it said.
Alliance Research expects average CPO prices to be higher on the back of more manageable inventory levels in CY14. Despite that, it expects sluggish palm oil exports due to ample supply of competing oilseeds.
On the flipside, it views that domestic consumption in both Malaysia and Indonesia for biodiesel use could help keep inventories in check during the year below 2.3 million tonnes.
“As there is no expectation of a bumper crop as well, we view that inventories will stay clear of the historical high of 2.65 million tonnes recorded in December 2012.
“Given these expectations, we are raising our sector CPO ASP for CY14 to RM2,600 a tonne from RM2,500 previously. We expect CPO prices to trend stronger in 1HCY14 as production dips as per seasonality.
“However, the weak export demand will keep prices from trending into the RM2,800 to RM3,000 zone and possibly bring prices to trend between RM2,500-RM2,700 during the 2HCY14 period,” Alliance Research said.