KUALA LUMPUR (Dec 22): Affin Hwang Investment Bank Bhd downgraded target prices (TP) for plantation shares Sime Darby Bhd, IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK) after lowering crude palm oil (CPO) price estimates.

In a note today, Affin Hwang analyst Ong Keng Wee said it had slashed CPO average selling price forecast on large inventory of oil palm and rival crop soybean, amid lower crude oil prices.

Ong said Affin Hwang had cut its TP for Sime Darby to RM8.50 from RM8.92 while the fair value for IOI Corp was lower at RM3.74 versus RM4.07 previously.

Affin Hwang reduced its TP for KLK to RM21.51 from RM23.04.

“On balance, we cut our CPO ASP forecasts by just RM200 per metric tonne (MT) to RM2,400 per MT in 2015 and RM2,500 per MT in 2016 to 2017. Following the cut in our CPO ASP forecasts, we cut earnings per share (EPS) forecasts for the plantation stocks under our coverage by 4% to 14% for 2015 and 2016 respectively.
 
“On the revised CY15 EPS forecasts and unchanged price-earnings ratio (PE) of 11 to 18 times, target prices are also cut by 4% to 14%,” Affin Hwang said.

Ong said high CPO inventories, the sharp fall in crude oil price and likely boost in South American soybean harvest had added downward pressure on CPO prices.
 
However, the weaker ringgit was supportive for CPO prices as a weaker ringgit versus the US dollar makes the commodity cheaper in world markets.
 
“Palm oil exports faced stiff competition from record high US production of soybean and will now have to contend with the likelihood of another record South American harvest following reports of favourable weather.

“Narrower soybean-oil premium (currently approximately US$93 per MT versus record high of US$386 per MT in July12) encourage substitution of palm oil,” Affin Hwang said.