PPB, Sime rise in anticipation of less CPO output

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KUALA LUMPUR (Jan 9): PPB Group Bhd and Sime Darby Bhd rose as the recent lift in crude palm oil (CPO) prices boosted sentiment on plantation stocks.

CPO rose on expectation of lower oil palm output due to recent floods and in anticipation of monsoon rain this week.

Reuters reported that Malaysian palm oil futures rose for a third day to hit a near six-month high on Thursday, on fears that supplies of the tropical oil will be further tightened by another round of monsoon rains in the no.2 grower.

The Malaysian Meteorological Department raised its weather warning on Thursday to an "orange stage" from a "yellow stage", and forecast Johor, Pahang, Terengganu and Kelantan to receive heavy rains until the end of the week.

PPB rose 28 sen or about 2% to reach a high of RM14.08. The second-largest gainer on the exchange had later reduced gains to RM14 as at 11.18am with with 67,600 shares traded.

Sime Darby gained as much as 12 sen or 13% to RM9.22 before trading at RM9.18 at 11.20 am, with 776,900 shares traded.

CPO prices fell to RM2,356 a tonne today from yesterday's (Jan 8) price of RM2,369, according to Bloomberg data. CPO prices had risen to current levels from RM2,095 in August 2014.

In a note today, Hong Leong Investment Bank Bhd (HLIB) said although CPO prices were lifted, the research house was keeping its “neutral” outlook on the plantation sector.

HLIB said the “less-than-bullish” view was backed by a cap in demand and prices for vegetable oils due to moderate economic growth and a divergence between the US and other major economies.

HLIB also took into account the narrow discount between prices of soybean and palm oil.

The research house also cited other factors such as lower crude oil price, which will curb voluntary biodiesel consumption, and higher production costs due to higher labour and fertiliser costs.

“Thus, we are also maintaining our assumption of RM2,400 per tonne for 2016, given the unexciting demand outlook. We are maintaining our net profit forecasts as well as target price of companies under coverage.

“Given the less-than-bullish demand outlook for the sector as well as the relative pricey valuations, efficient plantation players with young age profile (which indicates good fresh fruit bunches output growth) will be able to better weather the low CPO price environment,” said HLIB.

HLIB maintained its “neutral” call on the plantation sector, with CB Industrial Product Holding Bhd as its top pick.