Hot Stocks Palm oil-related counters on an uptrend over boosted CPO prices

by **Cals** Wed 30 Mar 2016, 02:14

Hot Stocks

[size=28]Palm oil-related counters on an uptrend over boosted CPO prices

By Sangeetha Amarthalingam / theedgemarkets.com | March 29, 2016 : 1:55 PM MYT

KUALA LUMPUR (March 29): Palm oil-related counters showed an uptrend amidst concerns of lower production due to the El Nino phenomenon, inadvertently boosting crude palm oil (CPO) price.

At 11.59am, Kuala Lumpur Kepong Bhd rose two sen or 0.08% to RM24, with 283,000 shares done, for a market capitalisation of RM25.73 billion.

Felda Global Ventures Holdings Bhd grew two sen or 1.37% to RM1.48, with 3.02 million shares done, giving it a market capitalisation of RM5.32 billion.

Sime Darby Bhd went up two sen or 0.25% to RM7.92, with 957,300 shares exchanging hands for a market capitalisation of RM49.98 billion.

IOI Corporation Bhd climbed four sen or 0.86% to RM4.67 with 5.6 million shares traded for a market capitalisation of RM29.17 billion.

Genting Plantations Bhd grew two sen or 0.18% to RM11.08 with 302,700 shares traded for a market capitalisation of RM8.7 billion.

Ta Ann Holdings Bhd increased three sen or 0.59% to RM5.08, with 25,400 shares transacted, for a market capitalisation of RM1.88 billion.

At the same time, the FBMPalmOil index expanded 4.32 points or 0.03% to 17,014.961 points, while the plantation counter rose 27.87 points of 0.03% to 7,892.5 points.

MIDF Research analyst Alan Lim said the CPO price increase of an average of RM2,450 per metric tonne from RM2,300/MT could be related to several reasons, including severe stockpile depletion in the second quarter of 2016.

“Also, United States may produce less soybean than earlier estimated and low crude oil price is not expected to affect CPO price,” he said in a sector note on Friday.

He projected the Malaysia palm oil stockpile to drop to a critical level of 1.5 million metric tonnes towards the end of the second quarter of this year, and warned that the impact of El Nino was only at its beginning stage.

“Hence, CPO production will be significantly lower than what it used to be in the first half of 2016. We think that there is a chance that the CPO discount against soybean oil (SBO) should narrow even to zero level, due to severe supply shock in the market.

“Such rare phenomenon occurred before in Feb 2011, in which CPO price surged to RM3800/MT as inventory dropped to 1.48 million MT. Our key assumptions are SBO price to stay at around USD725/MT and USD/MYR rate of 4.15,” he said.

Earlier today, an assessment of prices by Reuters showed prices reaching RM5,406 per tonne on Monday, rising by over 20% since the start of the month.

Reuters wrote that production of palm kernel oil, like crude palm oil, is taking a hit from a crop damaging El Nino, with some traders estimating output to be lower than usual in March.

The El Nino brings scorching heat and drought across Southeast Asia, impacting palm fruit yields in the world's top two growers Malaysia and Indonesia.

However, Affin Hwang Capital IB Bhd analyst Ong Keng Wee maintained that the El Nino effect is only temporary.

Admitting that the current rally in CPO was related to the lower oil palm output, Ong told theedgemarkets.com that the phenomena would not last long.

In fact, Ong wrote in a plantation sector note that the sustained bullishness was unlikely.

“The current CPO price uptrend is positive for planters, but we believe there are moderating factors, including a potential yield recovery, a shortfall in biodiesel production and narrower soybean oil premium. Selected stocks are also over-valued at current levels, in our view,” he said.

The research house maintained its 2016 to 2018 estimate CPO average selling price assumption of RM2,400/MT, sector neutral rating and stock calls.
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