Investors likely to re-rate plantation sector, say analysts

(Business Times)10 July 2001 - THE impressive performance shown byplantation-related counters on the Kuala Lumpur Stock Exchange (KLSE)lately are likely to change the way investors view and rate the sector,analysts say.

They generally agreed that the outlook for plantation stocks seems brightat the moment, as most of them were optimistic that crude palm oil (CPO)prices are likely to move up further within the next one year.

The rebound in CPO prices as well as higher export expectations for thecommodity this year are the main factors behind greater investor interestin plantation shares lately, the analysts said.

"With the firms' earnings revised upwards as CPO prices go higher, themarket is likely to re-rate the plantation sector," said HSBC Securitiesanalyst Hamdan Abdul Majeed.

Currently, the sector is rated "underweight" or "neutral" by many equityanalysts, he said.

Hamdan said he was bullish on the outlook of the plantation sector in thenear term, as CPO prices are expected to rise further by the end of thisyear on the back of tight CPO and soyabean oil supply.

"We expect the price of CPO to reach RM1,200 per tonne within the next 12months, but if the El-Nino phenomenon happens towards the end of thisyear, it could be higher," he said.

As of July 6, Malaysia's CPO prices stood at RM896.50 per tonne, comparedwith RM795.50 in June and RM743 in May.

Meanwhile, an analyst from KAF Research Noor Azwa Mohd Nor said theimprovement in CPO prices will greatly benefit "pure plantation" firmssuch as Asiatic Development Bhd and Austral Enterprises Bhd compared withdiversified conglomerates such as Golden Hope Plantations Bhd and IOICorp.

"This is because all or most of the earnings of these pure plantationfirms come from palm oil, so they are the ones who are going to benefitthe most," he said.

He added that the sudden uptrend of local plantation stocks lately hasactually caught many analysts by surprise.

"Basically, it (the uptrend) is more towards the players' sentiment as wehave not seen any concrete fundamentals with regard to greater demand forCPO," he said, referring to talks that China will raise its palm oilimport quota and India its CPO imports.

On whether investors' interest on plantation stocks is likely to besustained throughout the year, an analyst from an equity research firmsaid this would depend on the supply situation of soyabean from the US andhigher anticipated demand for CPO from major importers such as China andIndia.

"If any of these expectations is not true, it won't be sustained," shesaid.

Meanwhile, the KLSE Plantation Index rose 23.36 points yesterday to1457.62 from last Friday's close.

The index has outperformed the KLSE Composite Index (KLCI) in terms ofcomparative returns for the period between April 2 and July 9 this year,achieving a 10.39 per cent appreciation in value compared with minus 3.54per cent recorded by the KLCI.

There are 27 gainers out of 39 counters listed in the Plantation Index.

Three counters closed lower while three others were unchanged.

Asiatic Development closed 11 sen higher at RM0.98, Golden Hope gained 6sen to RM3.50 and PPB Oil Palm rose 13 sen to RM1.58.

Austral improved 7 sen to RM2.35, Kumpulan Guthrie was unchanged at RM2.15while IOI Corp fell two sen to RM3.02.