Kenanga Research upgrades plantation sector Overweight, ups ratings for Sime & KLK

Business & Markets 2013
Written by Zatil Husna of theedgemalaysia.com
Wednesday, 11 December 2013 15:16
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KUALA LUMPUR (Dec 11): Kenanga Research has upgraded the
plantation sector to “Overweight” from “Neutral” and increased its
forecast on crude palm oil (CPO) prices to RM2,800/mt for 2014.
In a note Wednesday, the research house it was also upgrading Sime
Darby Bhd and Kuala Lumpur Kepong Bhd (KLK) to “outperform”.
“We are upgrading our call on plantation sector to Overweight with
CY2014 CPO prices increased to RM2800/mt (previously RM2700/mt).
“The RM100/mt increase is due to lower end-2014 inventory level
estimate by 30% to 1.60m mt (from 2.30m mt previously),” the research
house said.
Kenanga Research said it expects the downtrend in inventory to be
sustained throughout the first quarter of next year (1Q13).
“More importantly, we expect the downtrend in inventory to be sustained throughout 1Q2014 and this should allow CPO
prices to continue appreciating up to RM2900/mt by Mar 2014.
“In our view, plantation companies’ earnings are now at an inflection point as fourth quarter (4Q13) average CPO price is
poised to recover year-on-year (y-o-y) for the first time after 8 consecutive quarters of decline y-o-y.
Among the big caps, the research house upgraded its calls on both Sime Darby (new TP: RM10.30) and KLK (new TP:
RM26.10) to “outperform”.
“We believe their earnings should improve significantly in line with better CPO prices,” it said.
Kenanga’s big cap top pick is IOI Corporation Bhd (OP; TP: RM6.50) while it likes TSH Resources Bhd (OP; TP: RM3.38)
for mid cap stock.
The research house said, it likes IOI Corp as the valuation should rerate higher post the demerger exercise with IOI
Properties Bhd.
It likes TSH as the stock should benefit more from recent CPO prices increase due to its high fresh fruit bunches (FFB)
growth.