MARKET DEVELOPMENT
JF Apex Research Keeps Overweight on Plantations, Sees CPO Price Recovering
JF Apex Research Keeps Overweight on Plantations, Sees CPO Price Recovering
11/01/2014 (The Star) - JF Apex Research is maintaining its Overweight recommendation on the plantations sector as it expects the lower crude palm oil (CPO) supply to support CPO prices.
The research house said CPO production continued to fall in December by 10.4%, after declining 5.6% in November, which was largely in line with its expectation.
“We believe the softer CPO production in December was rendered to the wet weather amid monsoon season that had complicated harvesting. Moving forward, we expect CPO production to further soften in January 2014 amid low production cycle,” it said.
JF Apex Research added the biodiesel mandates in Malaysia and Indonesia would boost CPO consumption and keep the palm oil inventory in check.
For 2013, CPO production rose 2.3% to 19.2 million tonnes from a year ago as production recovered from the biological resting of palm trees in 2012.
As for 2014, the research house projects CPO production to rise 5%-8% to breach 20 million tonnes, based on the assumptions that crop yield would continue to recover from the biological tree stress in 2012 and improved crop yield as a result of good rainfall in Malaysia in the past two years.
JF Apex Research noted that for December, palm oil exports eased 1.4% on-month after falling 8.7% in November.
In December, palm oil export to China and Pakistan rose 14% on-month and 3.5% on-month respectively. However, India recorded a 33% fall in imports as the surge of CPO price at the beginning of December had dented demand for palm oil from India.
For 2013, palm oil exports rose 3.2% to 18 million tonnes versus 17.5 million tonnes in 2012.
“End-December 2013 palm oil stock level was recorded at 1.99mil tonnes, a tad higher than of 1.98mil tonnes in November,” it said, due to lower exports amid the low production cycle.
JF Apex Research said while the CPO price took a beating in 2013, it expects the price to recover to above RM2,700 a tonne in Q1, 2014.
Its top pick for the sector is Genting Plantations (Target Price: RM12.34) based on sum-of-parts (SOP) valuation which could better reflect the value of the group’s growing property division.
It added Genting Plantations was steadily expanding its plantation division in Indonesia, which had returned to the black since last two quarters and set to deliver earnings growth.
But it downgraded its call for IOI Corp to Hold with a lower target price of RM4.45 as it fine-tuned earnings forecast for the group post the de-merger of the Group’s property division from IOI Corp.
“The group is now a pure plantation player but we think there is no exciting catalyst to the group in the short to medium term.
“Meanwhile, we maintain our Hold calls for Kuala Lumpur Kepong (Target Price:RM23.36) and IJM Plantations (Target Price: RM3.15),” it said.
The research house said CPO production continued to fall in December by 10.4%, after declining 5.6% in November, which was largely in line with its expectation.
“We believe the softer CPO production in December was rendered to the wet weather amid monsoon season that had complicated harvesting. Moving forward, we expect CPO production to further soften in January 2014 amid low production cycle,” it said.
JF Apex Research added the biodiesel mandates in Malaysia and Indonesia would boost CPO consumption and keep the palm oil inventory in check.
For 2013, CPO production rose 2.3% to 19.2 million tonnes from a year ago as production recovered from the biological resting of palm trees in 2012.
As for 2014, the research house projects CPO production to rise 5%-8% to breach 20 million tonnes, based on the assumptions that crop yield would continue to recover from the biological tree stress in 2012 and improved crop yield as a result of good rainfall in Malaysia in the past two years.
JF Apex Research noted that for December, palm oil exports eased 1.4% on-month after falling 8.7% in November.
In December, palm oil export to China and Pakistan rose 14% on-month and 3.5% on-month respectively. However, India recorded a 33% fall in imports as the surge of CPO price at the beginning of December had dented demand for palm oil from India.
For 2013, palm oil exports rose 3.2% to 18 million tonnes versus 17.5 million tonnes in 2012.
“End-December 2013 palm oil stock level was recorded at 1.99mil tonnes, a tad higher than of 1.98mil tonnes in November,” it said, due to lower exports amid the low production cycle.
JF Apex Research said while the CPO price took a beating in 2013, it expects the price to recover to above RM2,700 a tonne in Q1, 2014.
Its top pick for the sector is Genting Plantations (Target Price: RM12.34) based on sum-of-parts (SOP) valuation which could better reflect the value of the group’s growing property division.
It added Genting Plantations was steadily expanding its plantation division in Indonesia, which had returned to the black since last two quarters and set to deliver earnings growth.
But it downgraded its call for IOI Corp to Hold with a lower target price of RM4.45 as it fine-tuned earnings forecast for the group post the de-merger of the Group’s property division from IOI Corp.
“The group is now a pure plantation player but we think there is no exciting catalyst to the group in the short to medium term.
“Meanwhile, we maintain our Hold calls for Kuala Lumpur Kepong (Target Price:RM23.36) and IJM Plantations (Target Price: RM3.15),” it said.