Hot Stocks KLK, PPB, IOI Corp among largest decliners on weaker CPO price

by **Cals** Fri 22 Aug 2014, 01:24

Hot Stocks KLK, PPB, IOI Corp among largest decliners on weaker CPO price

Business & Markets 2014

Written by Tang Wei Lynn of theedgemalaysia.com

Thursday, 21 August 2014 16:08

KUALA LUMPUR (Aug 21): Kuala Lumpur Kepong Bhd (KLK), PPB Group Bhd, and IOI Corp Bhd were among top decliners across the exchange as weaker crude palm oil prices (CPO) prices hit market sentiment.

CPO prices touched a five-year low yesterday on several factors, which included a record harvest of rival crop soybean in the Americas, and a firmer ringgit versus the US dollar.

In Malaysia, KLK fell 70 sen or 2.93% to RM23.16 at 12.30pm, PPB declined 26 sen or 1.72% to RM14.86, while IOI Corp fell 23 sen or 4.6% to RM4.77.

At about 3.30 pm, KLK was traded at a similar price, while IOI Corp changed hands at RM4.83.
PPB stood at RM15.

Meanwhile, the Kuala Lumpur Plantation Index fell 150.24 points or 1.7% to 8,670 as at 2.42 pm.
Its 52-week high stood at 9,406.75 points on May 9 this year while the low was at 7,979.86 points seen on August 28 last year.

For comparison, the FBM KLCI fell 5.56 points or 0.3% to 1,873.33 at about 3.36pm today.

CPO and soybean oil are substitutes, hence, prices of both commodities move in tandem. A firmer ringgit versus the US dollar makes CPO more expensive to global buyers.

The ringgit was traded at RM3.1715 to the US dollar at 3.42pm today. This compares to the weakest level over the past six month at RM3.3124 on March 21 this year, Bloomberg data showed.

Bloomberg, quoting Wayne Gordon, an analyst at UBS AG, reported that palm oil’s rout was “set to deepen” with prices extending declines to less than RM2,000 ($630) a metric ton on ample global supplies of edible oils.

The news report said palm oil’s discount to soy oil was at $84.95 a tonne today, compared with an average of $244 last year, according to Bloomberg data. It noted that soybeans fell to $10.35 a bushel in Chicago yesterday, the lowest level since September 2010, while soy oil traded at 32.76 cents a pound, the lowest since March 2009.

For comparison, Malaysian CPO spot prices stood at RM2,088 a tonne. This compares to RM2,922 in March this year.

Gordon said palm oil prices might rebound to RM2,350 within 12 months, citing expectations of support from biodiesel demand.

The share price performance of KLK and IOI Corp followed the release of both companies' financials yesterday.

KLK's net profit rose to RM213.66 million in the third quarter ended June 30, 2014 from RM189.16 million a year earlier.

Meanwhile, IOI Corp reported that net profit rose to RM407.5 milion in the fourth quarter ended June 30, 2014 from RM270.7 million a year earlier. Full year net profit was higher at RM3.37 billion versus RM1.97 billion a year earlier.

Ivy Ng, an analyst with CIMB Investment Bank Bhd, told theedgemalaysia.com over the phone that the fall in KLK’s share price today could be due profit taking, as the stock rose about 3.2% yesterday to RM23.86.

Ng said CIMB had a “reduce” call on KLK shares with a target price (TP) of RM22.50.

For comparison, CIMB has a “reduce” call on IOI Corp shares with a TP of RM4.49.

“The concern is more about the current CPO price, which has fallen quite a lot since the beginning of the year. A lot of estimates may not have priced in such low prices, and hence could cause a concern among investors,” Ng said.

However, Ng noted that there was a possibility that CPO prices might bounce back towards the later part of the year due to the dry season.

“Some planters think (the drought) will lead to weaker production. If that happens, it could serve to cushion downside for palm oil,” she said.