ANALYSTS are mixed on the plantation sector following reports that the ministry had approved 1,228 out of 1,276 applications under the RM200 million replanting scheme, which was introduced late last year.
It was unclear whether the approved replanting would be completed this year or would be undertaken in stages through March 2010, as allowed by the programme.
The ministry said a new RM100 million replanting scheme under the recent second stimulus package would allocate RM6,000 per ha, which includes replanting, fertiliser and seedlings for smallholders.
HwangDBS Vickers said: “As the replanting programme offered for the smallholders had a far higher incentive, this could result in higher take-up for replanting programme nationwide. Our forecast currently assumes 50,000 hectares to be cut down this year, followed by 60,000 hectares next year.”
The research house, which is neutral on the sector, said in its note yesterday that plantation stock prices were likely to consolidate in the near term as it believed the current price earnings (PE) multiples have moved ahead of earnings potential.
“Our top sell/fully valued calls are Sime Darby and IOI Corporation,” it added.
Meanwhile, AmResearch said despite the potentially higher palm oil production in the second half of this year, it drew comfort from the fact that demand could recover underpinned by the festive period in China and India.
Plantation Industries and Commodities Minister Datuk Peter Chin said the country’s palm oil inventory for the month of March would decline to 1.5 million tonnes (February: 1.56 million) due to the replanting programme.
“Decline in palm oil inventory is positive for crude palm oil (CPO) prices and it should help support CPO prices at the RM2,200/tonne level.
“But we believe that fall in inventory is not entirely due to the replanting programme. A recent CBOT (Chicago Board of Trade) report quoted industry executives as saying that palm oil fruits have been slow to ripen. Hence, CPO production in March has been less than expected,” AmReasearch said.
“We recommend overweight on the plantation sector as the supply of vegetable oils is expected to remain tight. A weak US dollar would also help prop up CPO prices.
“Our picks in the sector are Kuala Lumpur Kepong and IOI Corporation. Among smaller companies, we have buys on Asiatic Development and IJM Plantations,” it added.
This article appeared in The Edge Financial Daily, April 9, 2009.