MARKET DEVELOPMENT
EPF Takes Contrarian Route Cutting Stakes in Plantations in Bullish Times
EPF Takes Contrarian Route Cutting Stakes in Plantations in Bullish Times
18/03/2014 (The Star) - It seems the Employees Provident Fund (EPF) is taking a contrarian view of plantation stocks just as the market is most bullish about the sector.
In the past six months, the country’s biggest pension fund cut down its stake in IOI Corp Bhd from 10.2% in September to 7.2% last week.
The fund was also a seller in another big planter, Kuala Lumpur-Kepong Bhd, as it reduced its shares in the Ipoh-based company from 15.8% to 14.1% over the same period.
The EPF traditionally does not comment on its stock trading strategy, but one explanation offered by a senior fund manager is that it is always easier to get a good price in a rising market.
Higher crude palm oil (CPO) prices in recent months have reignited investor interest on plantation companies that propelled their share prices to multiple year highs. RHB Research Institute, for instance, has an Overweight call on the sector and believes investors should continue to buy plantation stocks.
“We believe this is still the early stage of a bull market, as funds have just started to flow into the palm oil sector and valuations remain inexpensive,” the firm said.
Most plantations companies covered by RHB Research posted stellar earnings, with six out of 11 recording above estimate results, and four were in line with expectations.
“We expect better quarters ahead on the back of rising CPO prices and lower production costs,” it said.
The firm rated IOI Corp a Buy, which is one of its top picks together with Sarawak Oil Palms Bhd and Jaya Tiasa Holidings Bhd. It is “neutral” on KL Kepong.
Only three out of 30 analysts who have coverage on KL Kepong have a Buy call on the stock.
One of them is Kenanga Research, which in a note on Friday said it believed KL Kepong offered an “attractive opportunity for long-term investors’’ because its younger tree profile provided better growth prospects over the next three years compared with other growers.
“We think investors should start accumulating KL Kepong shares as it is the key laggard among big cap planters,’’ it said.
Shares in KL Kepong had risen 7.9% since in the past six months to RM23.76 on Friday, faster than IOI Corp’s 6.3% rise to RM4.70 over the same period.
The two stocks, however, lagged the benchmark CPO futures price spectacular 19% jump to RM2,796 a tonne.
The contract hit a 18-month high of RM2,901 a tonne on March 10.
CIMB Research said the surge in CPO price would curb discretionary biodiesel demand as it would no longer be economically viable to convert CPO to fuel without subsidies.
“We believe the price rally could only sustain if there is no relief from the current drought, which is affecting some key palm oil regions,’’ it said.
The firm maintained its Neutral call on the plantation sector.
In the past six months, the country’s biggest pension fund cut down its stake in IOI Corp Bhd from 10.2% in September to 7.2% last week.
The fund was also a seller in another big planter, Kuala Lumpur-Kepong Bhd, as it reduced its shares in the Ipoh-based company from 15.8% to 14.1% over the same period.
The EPF traditionally does not comment on its stock trading strategy, but one explanation offered by a senior fund manager is that it is always easier to get a good price in a rising market.
Higher crude palm oil (CPO) prices in recent months have reignited investor interest on plantation companies that propelled their share prices to multiple year highs. RHB Research Institute, for instance, has an Overweight call on the sector and believes investors should continue to buy plantation stocks.
“We believe this is still the early stage of a bull market, as funds have just started to flow into the palm oil sector and valuations remain inexpensive,” the firm said.
Most plantations companies covered by RHB Research posted stellar earnings, with six out of 11 recording above estimate results, and four were in line with expectations.
“We expect better quarters ahead on the back of rising CPO prices and lower production costs,” it said.
The firm rated IOI Corp a Buy, which is one of its top picks together with Sarawak Oil Palms Bhd and Jaya Tiasa Holidings Bhd. It is “neutral” on KL Kepong.
Only three out of 30 analysts who have coverage on KL Kepong have a Buy call on the stock.
One of them is Kenanga Research, which in a note on Friday said it believed KL Kepong offered an “attractive opportunity for long-term investors’’ because its younger tree profile provided better growth prospects over the next three years compared with other growers.
“We think investors should start accumulating KL Kepong shares as it is the key laggard among big cap planters,’’ it said.
Shares in KL Kepong had risen 7.9% since in the past six months to RM23.76 on Friday, faster than IOI Corp’s 6.3% rise to RM4.70 over the same period.
The two stocks, however, lagged the benchmark CPO futures price spectacular 19% jump to RM2,796 a tonne.
The contract hit a 18-month high of RM2,901 a tonne on March 10.
CIMB Research said the surge in CPO price would curb discretionary biodiesel demand as it would no longer be economically viable to convert CPO to fuel without subsidies.
“We believe the price rally could only sustain if there is no relief from the current drought, which is affecting some key palm oil regions,’’ it said.
The firm maintained its Neutral call on the plantation sector.