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Tuesday, June 21, 2011

Credit Suisse maintains Underweight on plantations (Edge)

Credit Suisse Research maintains its Underweight stance on PLANTATION []s due to the rich valuations and also its bearish outlook for palm oil prices in the short term.

“Our key Underperform calls are on IOI Corp (target price RM5) and Sime Darby (TP RM8),” it said on Monday, June 20. As for KLK, it was Neutral on the stock and had a TP of RM21.70.

The research house said corn prices have fallen 10% over the past week and it believed this had dragged palm oil prices. The palm oil futures are now closer to RM3,200/tonne (19% below the peak of RM3,930 in mid-February 2011).

“Historical trends suggest that corn, soyabean and palm oil prices are highly correlated. Corn and palm oil prices have a correlation factor of 79%, 77% and 78% over a one-, three- and five-year period, respectively. If corn prices continue to fall, palm oil prices would also weaken,” it said.

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