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Friday, February 11, 2011

Plantation Sector – Downgrading for the approaching CPO price peak (CIMB)

We are downgrading the regional plantation sector from Trading Buy to NEUTRAL as

(1) most of the planters have outperformed the market since our sector upgrade,
(2) spot CPO price has done better than expected, is close to its peak and should head south in 2H, and
(3) sector valuations are broadly in line with market P/E. But this is balanced by the bright earnings outlook in the current year and M&A potential.

We raise our CPO price forecasts by 16% to US$1,100 (RM3,200) for 2011 and by 5% to US$1,000 (RM2,900) for 2012 given the smaller-than-expected supply. But our target prices for most planters for most planters is reduced as we scale back our target forward P/Es by 2-3 multiple points. We also lower our ratings for four stocks to Neutral and IOI Corp to Underperform. Golden Agri remains our top pick. Following our downgrade of regional plantations, our strategist advocates a switch into coal, tin and nickel plays in Indonesia within the commodity space.

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