13/09/06 (The Star)  -  PETALING JAYA: Plantation stocks continued to decline yesterday as sentiment continued to weaken on a softening in crude palm oil (CPO) prices and higher inventory levels, analysts said. 

IOI Corp Bhd and Kuala Lumpur Kepong Bhd were the biggest losers, dropping 50 sen each to RM15.80 and RM10.80 respectively. Kumpulan Guthrie Bhd and Asiatic Developments Bhd each lost 8 sen to RM3.60 and RM3.48 respectively. 

PPB Oil Palms Bhd was down 25 sen, or 3.3%, to RM7.35, Kulim (M) Bhd slipped 14 sen to RM4.06 while Golden Hope Plantations Bhd fell 8 sen to RM4.58. 

According to Bloomberg data, CPO futures for third-month November closed RM1 lower at RM1,538 per tonne.

In August, Malaysia's exports of palm oil improved 6.3% from July to 1.31 million tonnes, driven mainly by stronger demand from India and Pakistan. 

Production, on the other hand, rose 11.8% to 1.54 million tonnes from the previous month and was 12.6% higher than that in the same month last year.

August palm oil inventory rose 6.6% month-on-month and 24.5% year-on-year to 1.68 million tonnes, as expansion in production outpaced exports.

OSK Securities said in a report that the share prices of plantation stocks had pulled back from their respective peaks due to the fall in crude oil prices and CPO prices. 

Nonetheless, the brokerage expects the setback to be “temporary” and would set the stage for the “next run-up''. 

 
“We believe the CPO up-cycle remains very much intact and with the commencement of biodiesel plants worldwide going into 2007, the palm oil inventory level as well as that of other edible oil is set to decline,” the research house said.

It added that CPO prices would rally sharply next year to an expected average price of RM1,750 per tonne. The tabling of the National Biofuel Act in Parliament this month to pave the way for the compulsory mixing of palm olein with fossil diesel early next year could be a catalyst for the next upswing in CPO prices as the use of Envo Diesel would require up to 500,000 tonnes of palm oil annually, OSK said. 

HLG Securities, in its report, said the sector's valuation was rich as its current market capitalisation weighted one year price-to-earnings ratio of 16.1 times was 55% higher than its historical average of 10.4 times. 

“Major risks to our view include a rebound in oil price, a better-than-expected biodiesel off-take and unfavourable weather, which disrupts global oilseeds production,” the research house said. 

Mayban Securities concurred, adding that it favoured Asiatic, whose share price was below the sector average.