Plantations: Stock level eases in August

Plantation sector
Maintain neutral: Lower crude palm oil (CPO) inventory in August this year, the large price discount between CPO and soyoil/rapeseed oil of US$280 (RM854) to US$300 per tonne, and relatively softer soyabean prospects in the US and parts of South America will help support CPO price above RM3,000 per tonne in the short term. We expect short-term CPO price volatility to continue and maintain “neutral” on the sector. Our top “buys” are Sarawak Oil Palms Bhd (SOP) and TSH Resources Bhd which provide good long-term value and growth propositions with strong 16% and 20% three-year forward production compound annual growth rate respectively. SOP also trades at a single-digit price-earnings ratio of eight times 2012 PER.

Malaysia’s CPO production fell to 1.667 million tonnes (-4.8% month-on-month [m-o-m]) in August as work hours were shorter during the fasting month and workers went on holiday ahead of Hari Raya Aidilfitri. Lower m-o-m production was partially mitigated by weaker m-o-m exports of 1.689 million tonnes (-2.7% m-o-m, +39.4% year-on-year) and weaker m-o-m domestic consumption of 0.164 million tonnes (-10.1% m-o-m, -8.7% y-o-y). This resulted in lower August month-end stock of 1.885 million tonnes (-5.6% m-o-m, +10.2% y-o-y); in line with our expectations. Weaker m-o-m exports were mainly due to lower demand from China (0.39 million tonnes; -15% m-o-m, +204% y-o-y), and other non-core export markets (collectively 0.62 million tonnes; -13% m-o-m, +4% y-o-y). Exports to the European Union, the US, India and Pakistan registered higher m-o-m and y-o-y figures.

Early data point to the likelihood of an increase in inventory for September, with weaker m-o-m export estimates for Sept 1 to 10 of 389,069 tonnes (-36% m-o-m) and 337,038 tonnes (-36% m-o-m) by independent cargo surveyors Societe Generale de Surveillance and Intertek. Exports were likely impacted by the week-long Hari Raya and Independence Day celebrations in Malaysia. While we anticipate exports to pick up for Sept 11 to 20, the overall export figure for the month of September is likely to be weaker m-o-m. Demand may however receive a boost from CPO’s widening price discount to soyoil and rapeseed oil.

We maintain our RM3,200 per tonne average CPO price forecast for 2011 (year-to-date: RM3,390 per tonne) and RM3,000 per tonne for 2012 as we had expected prices to be lower in 2H11 on strong production recovery. The recent steep share price correction (-10% since August this year) presents investors with a good entry level into large-cap IOI Corp Bhd (“buy”). We also advocate “buy” on mid-caps, TSH and SOP, for their long-term value and growth propositions. — Maybank IB Research

Sarawak Oil Palms - Getting better and better

Sarawak Oil Palms posted an amazing Q2 result, balance sheet is getting better and better, not to mention strong cash flow. My only issue with SOP is their low dividend payout with no fix rate. If they decide to increase the payout, SOP will trade at UMCCA or other players valuation in no time. Hoping i could buy back below RM3.50. :p

Overall, im very bullish with palm oil industry and SOP.

p/s- Malaysia’s Aug'11 palm stocks down 5.6pc

Malaysia’s Aug palm stocks down 5.6pc

Malaysia’s August palm oil stocks fell 5.6 per cent to 1,884,560 tonnes from a revised 1,996,396 tonnes in July, industry regulator Malaysian Palm Oil Board said today.August’s fall exceeded market expectations that stocks in the world’s No.2 palm oil producer likely dropped 2.3 per cent to 1.95 million tonnes. - Reuters

Emerging Stocks Drop on U.S. Rating, Dragging Index Down 16% From May High

Very interesting market today. All covered with blood bath.

Took profit SOP and disposed all at 4.27 and 4.20. Raising my cash to ~25%.

Sarawak Oil Palms 5126

A nice growth and cyclical stock.

Plenty of room for growth at SOP

Sarawak Oil Palm Bhd (March 16, RM3.34) Upgrade to buy at RM3.30 with target price RM4.07: We met Sarawak Oil Palm’s (SOP) management recently, who said SOP is committed to improve production by adopting operating efficiency standards, including making continuous estate inspections and ensuring that fertiliser is evenly applied. Large immature areas will sustain SOP’s future growth. Currently, SOP has 26,548ha of immature areas which account for almost 45% of total planted areas. SOP is expected to register double digit fresh fruit bunch (FFB) production growth as 3,700ha which was planted in 2007 will start to bear fruit in FY11. We believe that SOP’s growth (in terms of FFB production) will accelerate in the future as the young trees and immature areas gradually reach maturity. SOP will progressively develop its 12,000ha of unplanted areas. The management does not have any new planting policy, but it is expecting to plant 5,000ha to 6,000ha annually. Therefore, the landbank will be fully exhausted by 2013. Management is continuously looking for new land, since more than 1.5 million hectares of land is available for palm oil cultivation in Sarawak. In addition, the government has approved more than 720,000ha of Native Customary Rights (NCR) land for plantation projects. Total capital expenditure is estimated at RM560 million in FY11. SOP is expected to build two mills and a refinery which are targeted to be in operation by FY12 and FY13. We are upgrading our recommendation for SOP to “buy” (from “neutral”) as the recent share price retracement has triggered our “buy” threshold. SOP’s steady earnings growth will be supported by: (i) large immature and young trees which account for more than 75% of total planted areas; (ii) improving FFB yield; and (iii) higher production as more trees gradually reach maturity. We maintain our target price at RM4.07, derived at 11.3 times 2011 earnings per share, which is one standard deviation above its five-year historical price-earnings ratio (PER) of 8.9 times. SOP is currently trading at 8.9 times forward PER, which is a 23% discount to the weighted average market PER of 11.5 times. — MIDF Research, March 16

Sarawak Oil Palms

Might be too early but i bought SOP ave RM3.30.
Anyway, market end up not so bad, and my portfolio also fall less than expected. Dunno hows my portfolio going to perform but, hoping for the best, especially for tsunami victims.

Portfolio Update

Chickened out today by selling Maybank @ RM8.72. My average price was RM8.65. Anyway, i still have some of Maybank @RM8.45. My view on Maybank still unchanged by since my entry price was a bit high, i think its better to dispose and raise cash. I have my eye on SOP now. Overall, most of Asian market performed quite well despite the 大地震 and 津波.

SOP, will do more research but valuation wise is very attractive. I think inflation and commodity play is nit over yet. Plus, percentage of their immature plant is higher compare with other smaller player like IJM Plantation.