MARKET DEVELOPMENT
Sarawak Oil Palms Among Top Plantation Picks for RHB Research
Sarawak Oil Palms Among Top Plantation Picks for RHB Research
28/12/2013 (Borneo Post) - Sarawak Oil Palms Bhd (Sarawak Oil Palms) is among the Malaysian top picks for RHB Research Institute Sdn Bhd (RHB Research) in its Plantation Strategy 2014 report.
According to RHB Research, Sarawak Oil Palms has among the best age profile among plantation stocks in Malaysia and will display stronger earnings with the increase in its prime age trees in the next two to three years, which will see the latter making up more than 70 per cent of its total mature area.
“Following a sector-wide crude palm oil (CPO) price upgrade, we raise our earnings projections for Sarawak Oil Palms by 17.8 per cent for financial year 2014 (FY14) to RM199.4 million and introduce our FY15 forecast at RM264.9 million,” it said.
RHB Research had upgraded the Malaysian plantation sector to ‘overweight’ (from neutral), as the earnings outlook appeared more upbeat after two years of contraction
The research house’s CPO price assumptions for CY14 and CY15 have been raised to RM2,700 per tonne and RM2,900 per tonne respectively (from RM2,600 per tonne) while maintaining its price assumption for CY13 at RM2,400 per tonne.
The main factors driving the upgrade, it noted, include a stronger global economy which means food demand will continue to grow and Indonesia’s lacklustre production growth on the double impact of dry weather in 2012 and 2013.
Unlike their Indonesian counterparts, the research house noted that Malaysian plantations will enjoy a good 2014.
They will benefit from higher CPO prices and stronger production, as rainfall in Malaysia has been relatively normal compared to deficits in most parts of Indonesia in 2012 and 2013.
In addition, factors such as mandatory biodiesel implementation in the world’s two biggest palm oil producing countries and production cost expected to remain flattish-to-lower on significantly cheaper fertilisers following the potash cartel breakup in mid-2013 are also driving the upgrade.
All in, RHB Research had maintained its ‘buy’ recommendation on the stock.
Post earnings revision, it lifted its fair value to RM7.12 per share, based on unchanged 16-fold FY14 earnings, consistent with target price earnings (P/E) for other mid cap plantation under its coverage. The stock trades at 14.6-fold FY14 earnings and 11-fold FY15 earnings.
“Sarawak Oil Palms is our preferred mid-cap Malaysian plantation stock. Its percentage of prime mature trees will rise to 66 per cent next year and to 70 per cent in 2015, resulting in booming profitability,” it reiterated.
Another Malaysian top pick was IOI Corporation Bhd (IOI Corp) which according to the research house, with the property demerger, the company will once again become a pure big cap plantation player and will benefit fully from the upward CPO price momentum.
RHB Research had upgraded the rating on the stock to ‘buy’, while lifting its sum of parts-based fair value to RM6.50 per share from RM6 per share previously, based on an unchanged CY14F target P/E of 18-fold applied to its plantation division and 12-fold for its manufacturing division, a higher SG$1.35 per share.
According to RHB Research, Sarawak Oil Palms has among the best age profile among plantation stocks in Malaysia and will display stronger earnings with the increase in its prime age trees in the next two to three years, which will see the latter making up more than 70 per cent of its total mature area.
“Following a sector-wide crude palm oil (CPO) price upgrade, we raise our earnings projections for Sarawak Oil Palms by 17.8 per cent for financial year 2014 (FY14) to RM199.4 million and introduce our FY15 forecast at RM264.9 million,” it said.
RHB Research had upgraded the Malaysian plantation sector to ‘overweight’ (from neutral), as the earnings outlook appeared more upbeat after two years of contraction
The research house’s CPO price assumptions for CY14 and CY15 have been raised to RM2,700 per tonne and RM2,900 per tonne respectively (from RM2,600 per tonne) while maintaining its price assumption for CY13 at RM2,400 per tonne.
The main factors driving the upgrade, it noted, include a stronger global economy which means food demand will continue to grow and Indonesia’s lacklustre production growth on the double impact of dry weather in 2012 and 2013.
Unlike their Indonesian counterparts, the research house noted that Malaysian plantations will enjoy a good 2014.
They will benefit from higher CPO prices and stronger production, as rainfall in Malaysia has been relatively normal compared to deficits in most parts of Indonesia in 2012 and 2013.
In addition, factors such as mandatory biodiesel implementation in the world’s two biggest palm oil producing countries and production cost expected to remain flattish-to-lower on significantly cheaper fertilisers following the potash cartel breakup in mid-2013 are also driving the upgrade.
All in, RHB Research had maintained its ‘buy’ recommendation on the stock.
Post earnings revision, it lifted its fair value to RM7.12 per share, based on unchanged 16-fold FY14 earnings, consistent with target price earnings (P/E) for other mid cap plantation under its coverage. The stock trades at 14.6-fold FY14 earnings and 11-fold FY15 earnings.
“Sarawak Oil Palms is our preferred mid-cap Malaysian plantation stock. Its percentage of prime mature trees will rise to 66 per cent next year and to 70 per cent in 2015, resulting in booming profitability,” it reiterated.
Another Malaysian top pick was IOI Corporation Bhd (IOI Corp) which according to the research house, with the property demerger, the company will once again become a pure big cap plantation player and will benefit fully from the upward CPO price momentum.
RHB Research had upgraded the rating on the stock to ‘buy’, while lifting its sum of parts-based fair value to RM6.50 per share from RM6 per share previously, based on an unchanged CY14F target P/E of 18-fold applied to its plantation division and 12-fold for its manufacturing division, a higher SG$1.35 per share.