July 27 2005 - ALTHOUGH the scrapping of the ringgit peg has hurt theplantations sector slightly, it can overcome the temporary setback thanksto strong global demand, low production and a slow harvest in palm oil’srival.

JPMorgan said the managed flotation of the ringgit is negative forplantations because international palm oil prices are quoted in US dollarand a stronger ringgit would result in a lower palm oil price.

"Our 2005/2006 estimates on palm oil price (in ringgit) assumptions havebeen lowered by 2 per cent and 4 per cent respectively. Palm oil prices,however, are still trending up. Buy on weakness because we expect palm oilprices (in US dollar) to trend up over the next 6-12 months by 10-15 percent on favourable supply-demand dynamics," said JPMorgan.

The research house added that even with a 4-5 per cent appreciation of theringgit, overall palm oil prices are still rising and is positive forplantations.

Last week, Malaysia scrapped the ringgit/US dollar peg and moved to amanaged float.

JPMorgan expects the ringgit to gradually appreciate against the greenbackby 4 per cent by end-2005 and a further 1 per cent by end-2006. JPMorgansaid only 30-40 per cent of production costs are imported (mainlyfertiliser) and overall earnings are negatively impacted.

It downgraded earnings on lower palm oil prices (in ringgit) whilemaintaining its palm oil price assumptions in US dollar and have factoredin its new ringgit/US$ exchange rate forecasts.

"Given that plantation companies normally sell forward by about threemonths, we expect the impact on earnings per share (EPS) in 2005 to beminimal, particularly for companies with June or September year-end."

JPMorgan lowered its EPS estimates for 2006 and 2007 between 3 per centand 10 per cent and reduced its share price target for the stocks itcovers.

Golden Hope Plantations Bhd and PPB Oil Palms Bhd closed flat at RM3.96and RM4.10 respectively, Kuala Lumpur Kepong Bhd closed up at RM7.20 whileIOI Corp Bhd closed lower at RM10.80.