Plantation Sector

FELDA

The US$2bil (RM6.08bil) listing of Felda Global Ventures Holdings Bhd to a Main Market listing on Bursa Malaysia, Asia’s biggest this year, is expected to take place at the end of June. The initial public offering (IPO) is offering up to 2.19 billion shares for institutional and retail investors.

According to the draft prospectus posted on the Securities Commission website, 1.92 billion shares will be offered to the institutional investors while the remaining 283.61 million shares will be offered to retail investors.

The institutional offering involves a total of 1.21 billion shares and 286.85 million issue shares allocated for Malaysian and foreign institutional investors, while 419.54 million issue shares are set aside for Bumiputera institutional and selected investors approved by International Trade and Industry Ministry, at the institutional price.

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Although 2011 was the best year ever for most plantation companies, their December quarter results were a mixed bag.

OSK continue to maintain Neutral stance on the sector. Although soybean and palm oil prices have strengthened of late, it is due to the threat of lower yields in the upcoming 1 or 2 months. For prices to sustain their run-up, demand has to stabilize and pick up, which have yet to see.

Within the sector, OSK continue to like Sarawak Oil Palms despite their strong stock price performance. These are well run plantations with more organic production growth going forward.

Below are the target prices and ratings for selected plantation stock.

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August MPOB statistics were within expectations with stock levels easing off as production saw a weaker month. Going forward, ECMLibra expects that production and exports are going to pick up concurrently, hence leading us to maintain our Neutral call. ECMLibra do note that the recurrence of a La Nina and also supply concerns in the soybean market could be re-rating catalysts for the sector.

ECMLibra has Trading Buy calls on all stocks under coverage except KLK. These companies currently trade below their historical average P/E multiples while CPO prices are at the RM3,000/mt levels and improved production is giving rise to strong earnings.

Selected Oil & Gas Stocks Fair Value, Target Price & Dividend Yield.

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OSK believe that palm oil price is set for a counter trend rally and its price action in the past weeks supports their view. At the very least, the bearish forces which had caused palm oil price to dip below RM3,000 appear to be spent for now as inventory continues to ease.

The bullish soybean market has yet to help push up palm oil price but should eventually give it a lift if the former continues to move up in the next 2 months.

Malaysia’s weakening palm oil production is also supportive of higher palm oil prices in the immediate term, especially given its large USD246 discount to soybean oil

OSK continue to like the sector as a short term tactical play but wary of stronger production in 2012, especially with the possible resurgence of the La Nina weather conditions.

Below are the target prices and ratings for selected plantation stock.

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Despite stockpile rising above the 2m-tonne mark, OSK is not overly concerned as they believe that most of the contributing factors are already known and may have been factored into the decline in palm oil price from RM3,963 per tonne in Feb 2011 to a low of RM3,016.

OSK suspects that inventory may fall back promptly due to supply disruption in 2H. With palm oil now trading at a significant USD210 per tonne discount to soybean oil, there is plenty of room for palm oil price to move higher when supply disruption materializes in the months ahead. Maintain Neutral on the sector, with a positive near term outlook.

Below are the target prices and ratings for selected plantation stock.

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