Thursday April 15, 2004 - MOST research houses have placed a buy call onplantation stocks, especially select pure plantation players, inanticipation of continued bullishness in crude palm oil (CPO) prices andtightness in global edible oils supply.

Some have even recommended a buy call on laggards like PPB Oil Palms Bhdand Kuala Lumpur Kepong Bhd (KLK), which have registered only priceincreases of 2.4% and 9.2% (as of last Friday ), respectively, over thepast three months.

Between Jan 9 and April 9, one analyst noted, plantation stocks like IOICorp Bhd had surged 28.8%, Asiatic Development Bhd, 21.7%, Golden HopePlantations Bhd ,23.4% and IJM Plantations Bhd ,25.4%.

RHB Research, which is bullish on the plantation sector, said in itslatest notes that plantation companies were expected to continue enjoycommendable earnings performance with potentially higher dividend payoutsin 2004 and 2005 following the higher average CPO prices outlook.

The research house’s stock picks are IOI Corp, Asiatic Development Bhd,IOI Oleochemicals Bhd, PPB Oil Palms Bhd, KLK, Golden Hope Plantations Bhdand Island and Peninsular Bhd.

It said earnings of IOI Corp, Asiatic, PPB Oil Palms and KLK would befurther boosted by higher fresh fruit bunches (FFB) production givenmaturing hectarages and new land acquisitions.

It is also revising upward the full-year CPO price average this year tobetween RM1,560 and RM1,600 per tonne, and next year's to RM1,650 pertonne.

Based on RHB Research's sensitivity analysis, for financial year 2005,every RM100 per tonne rise in CPO price, will see KLK's net earnings pershare (EPS) going up 10%, PPB Oil Palms' 11%, and Asiatic's 10%.

However, Mayban Securities, in its second quarter outlook, said earningsprospects of companies would look less appealing as we still expect asoftening of CPO prices in the longer term on lower demand from India andChina, seasonal upturn in palm oil production, as well as a potentialrecovery in the supply of 17 edible oils and fats.

The research unit expects the full-year average CPO price this year to belower, at RM1,360 per tonne, and next year's at RM1,559 per tonne.

Mayban Securities' stock pick is IOI Corp due to its strong downstreamoperation, strong FFB growth of 18% to 30%, and pro-active management.

These factors are expected to nullify any potential dip in CPO prices.

The research unit has a Hold on IOI Corp, Golden Hope, Kumpulan Guthrie,KLK and PPB Oil Palms.