Plantations – Higher stocks pile on the pressure for CPO price (CIMB)

Malaysia’s palm oil stock climbed 7% mom to an 18-month high of 2.05m tonnes in June. As it was 3% above our estimate but 4% below consensus expectations, we view this as a neutral event. But we continue to expect CPO prices to trend lower, possibly to below RM3,000 per tonne in the coming month as we estimate a 2% mom uptick in palm oil stock in July. We also flag the 2-5% downside risk to the 2012 earnings of the Malaysian planters if they follow Sime in raising the salaries of their Malaysian estate workers by RM200 per month. Pending confirmation, we make no changes to our earnings estimates. We remain NEUTRAL on the Malaysian plantation sector. Sime Darby remains our top plantation pick in Malaysia while Wilmar is our top regional pick.