'CPO prices will rebound'

RISING FAST : Planter KLK sees market uptrend as order spile up on tight global supplies

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PLANTER Kuala Lumpur Kepong Bhd (KLK) is hopeful of palm oil prices
bouncing back to RM3,300 a tonne, as orders for the food ingredient
pile up in the face of tight global supplies.

The third-month benchmark crude palm oil futures (CPO) on the Malaysian
Derivatives Exchange depreciated by RM67 to close at RM3,111 a tonne
yesterday.

KLK's chief executive Tan Sri Lee Oi Hian said
palm oil prices, despite having slipped from a peak of RM3,600 a tonne
in mid-April, is likely to sustain and trade up to RM3,300 a tonne
again.

"Prices should hold up in the coming months. Stocks are
tight," he told Business Times at the sidelines of Invest Malaysia 2012
held here yesterday.

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He concurred with commodity reports stating tight global edible oil
stocks is caused by South America's drought on soya harvests and a
lower rapeseed crop output in India.

"We're
also receiving more orders for Ramadhan in July. Based on these strong
fundamentals, we think palm oil prices are likely to recover to around
RM3,300 a tonne," he said.

KLK has, so far, planted up 205,848ha
in Malaysia and Indonesia. The plantation business makes up 77 per cent
of the firm's profits.

"We replant using tissue culture ramets
in our Malaysian estates as this improves yield per hectare. We also
carry out 5,000ha to 8,000ha new plantings in Indonesia every year,"
Lee said.

"Going forward, our earnings growth will be driven by the rising yields of our young areas," he added.

Rising
yields in the field has also contributed to rising oil extraction rates
(OER) at the mills. In 2008, KLK's OER was only 20.5 per cent. To date,
it has gone up to 21.8 per cent.

KLK is favoured over larger rivals like Sime Darby Bhd and IOI Corp Bhd, thanks to its younger oil palm tree profile.

BIMB Securities analyst Ng Keat Yung said more than two thirds of KLK's
oil palms are of young to prime age. This suggests KLK estates can
withstand and profit from erratic weather, which has a negative impact
on older oil palms.

"We're also positive on the disposal of
Crabtree & Evelyn," he said, adding the management can now put more
time and resources in oil palm planting and the manufacture of
oleochemicals.

"We like that KLK is putting up three refineries
and an oleochemical plant in Indonesia to leverage on the Indonesian
palm oil taxes that favours downstream investments," he said.

Ng
commented that the companyKLK's cashflow is strong and sufficient to
cover its borrowings. "Their debt is manageable. Gearing is at a
minimal of 0.06 times, it's healthy. Should the company wish to embark
on any acquisition to boost its plantation landbank, they have no
problems in gearing up," he said.

KLK

heavyweight bluechip RM 27 nearterm i guess ,

no bb worth until Rm23 EX price, 29/03/2013 ex date, ratio 20
premium now 8.68% KLK-CP

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