OSK believes that the share prices of plantation stocks may have peaked even though palm oil price may continue to stay relatively firm due to the current supply tightness. The decline in plantation stock prices of late may signify that they are in the PE multiple compression phase, which occurs at cycle peaks.
OSK views that the equity price action as a signal that palm oil supply will strengthen in 2H and the current CPO price strength as being unsustainable. Given the recent strength in CPO price, we have raised our CPO price assumption to RM3200 for CY11 from RM2700 previously but have factored in lower PE multiples in arriving at the target prices of plantation stocks given the potential CPO price decline. OSK maintains a Neutral call on the sector.
Below are the target prices and ratings for selected plantation stock.
| Stock | Price (RM) | Target (RM) | Market Cap (RM million) | Rating |
|---|---|---|---|---|
| Genting Plant | 8.24 | 8.23 | 6,252.9 | Sell |
| IJM Plant | 3.04 | 3.27 | 2,436.1 | Neutral |
| IOI Corp | 5.56 | 4.41 | 37,283.4 | Sell |
| KL Kepong | 22.08 | 20.55 | 23,570.5 | Neutral |
| Kulim | 13.10 | 15.20 | 4.174.6 | Buy |
| Sime Darby | 9.30 | 7.83 | 55,888.0 | Sell |
Source : OSK Research