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Thursday, February 24, 2011

IJMPlnt – Recommendation (Jupiter)

Worries surrounding demand disruption from revolts in Middle East countries have sent farm commodities prices down, including CPO. Soybean futures for May delivery plunged 5.1% to USD13.11 per bushel yesterday and soybean oil fell 4.4% to 54.62 cents per pound. Corn, wheat and rice prices also tumbled to the lowest level in more than five weeks. 3-month CPO fell 4% to RM3523/MT from yesterday’s RM3669/MT. At this juncture, it is hard to predict for how long the Middle East unrest will drag on and how it will disrupt demand for farm commodities. Nevertheless, following the sell-down on soybean oil, CPO lost some shine. It is currently trading at a slight premium to soybean oil. Hence, we expect the CPO to further correct in the coming weeks. For now, our recently upgraded CPO and PKO target prices of RM3200/MT and RM3000/MT remain unchanged until further review. We maintain our HOLD recommendation on IJMP with a fair value of RM3.28. We are concerned over the recent sharp decline in FFB production (Chart 1). The 5% FFB production growth during the FY11-FY12 periods, as guided by the management, may not be achievable if FFB production weakens further.

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