CIMB Research has raised its crude palm oil (CPO) price forecasts by 21% to US$600 (RM2,160) per tonne for 2009 and by 12% to US$660 for 2010 to account for the persistent drought in major planting areas in South America, weaker-than-expected CPO production, lower import duties for edible oils in India and the higher-than-expected CPO price in first quarter of 2009 (1Q09).
The research house also raised its local CPO price estimates by 22% to RM1,950 per tonne for 2009 and 13% to RM2,150 per tonne for 2010.
It raised earnings forecast for almost all the regional planters under its coverage by up to 95% after factoring in the new CPO forecasts and lower operating costs.
“We are also adjusting upwards the target prices for all the planters under our coverage by 21%-62% to account for the upgrade in our earnings estimates, and a higher target forward P/E (price-to-earnings) multiple in line with our recent upgrade in our target market P/Es across the region. Our strategists in Malaysia, Indonesia and Singapore have turned bullish on the equity market in these countries,” it said.
CIMB Research said Malaysia’s plantation sector remains an underweight, adding that while the country’s big-cap planters are the most expensive in the region, their share prices remain well-supported by local funds, which are looking for exposure to CPO price.
“The shift in the market benchmark from KLCI to FBM KLCI on July 6 may trigger local fund managers to reposition their portfolios, which are benchmarked to the index.
“In this scenario, we see Sime Darby Bhd as a big beneficiary due to its high and increased weight in the new indices,” it said.
It said the stock’s foreign shareholding had also declined significantly to only 12.9%, and in view of this development, raised its rating on the counter to trading buy from underperform.
“Our target price for Sime Darby has been raised from RM4.80 to RM7.10 to account for our upward revision of its plantation earnings; a higher forward P/E multiple of 15 times (previously 12 times) for its plantation division in view of our recent upgrade of the Malaysian market; and a lower RNAV (revised net asset value) discount of 20% (previously 50%) for its property division.
“We continue to tag a 10% discount to its sum-of-parts valuation to derive our target price,” it said.
The research house upgraded Hap Seng Plantations Holdings Bhd to neutral from underperform as its share price looked well supported at the current level by its dividend yield.
“Despite higher earnings projections and target prices, we continue to rate the remaining three Malaysian planters under our coverage (Asiatic Development Bhd, IOI Corporation Bhd and Kuala Lumpur Kepong Bhd) as underperforms due to their unattractive valuations,” it said.