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Thursday, September 10, 2009

Plantation Sector Report From HWangDBS

Weaker August exports.

August palm oil production in Malaysia changed little m-o-m (+0.2%) at 1.495m MT, as Sabah’s yield recovery remained weak. Exports to China and India also declined m-o-m; we believe purchases for October festivities have started to wind down. At end of August, palm oil inventory had risen by 83k MT to 1.415m MT, representing an stock/usage ratio of c.7.7% from c.7.2% in July. An expected rise in September production and flat exports may further increase palm oil stock next month.

Short-term negative bias may reverse in 4QCY09.
While palm oil prices may continue its negative bias in the near term, prospects of lower Malaysian palm oil supply q-o-q and lower Indian and Chinese soybean yields in 4QCY09 may offset record US soybean harvests this year (on oil-content basis). Hence, we are positive on CPO price direction in 4QCY09.
Selective stance still maintained.
Most plantation stocks under our coverage already reflect stronger CPO price expectations next quarter (note our average CPO price forecast of RM2,300 this year vs. YTD price of RM2,256), as their share prices did not move in tandem with CPO prices’ recent correction. Hence, we believe it is imperative to remain selective. Our top picks are based more on valuation of long-term prospects than on CPO price movements. We believe Wilmar and Kencana Agri are still undervalued; and expect them to sustain a decent 7.2% and 29.6% growth in CY10F earnings, respectively

Malaysian palm oil production forecast cut.
Palm oil production volume in the first two months of 3QCY09 amounted to 2.987m MT. This means September production would need to reach 1.966m MT in a typical peak q-o-q increase of 20%. Given August data, this seems unlikely to be met this year. As it is equally unlikely for 4QCY09 production to increase q-o-q, we have hence cut Malaysian palm oil production forecast to 17.6m MT for this year from 18.1m MT. For now, we are maintaining Indonesian palm oil
production at 20.8m MT and CY09F -10F prices at RM2,300/MT.

Report From HWangDBS

Tuesday, September 8, 2009

IJM Corporation fixes issue price and exercise price of warrants


IJM announced that it has obtained the required approvals from Bursa Malaysia for its 2-for-5 bonus issue, and rights issue of up to 134.9m new warrants. As such it has also
announced that:
  1. the issue price for the IJM warrants has been fixed at RM0.25 per IJM warrant; and
  2. the exercise price for the IJM warrants has been fixed at RM4.00 for every one new IJM share.
The issue price and the exercise price for the IJM warrants were determined after taking into consideration the theoretical ex-bonus price of the IJM shares of RM4.23, which was calculated based on the 5-day volume weighted average price of the IJM Shares up to and including 7
September 2009 of RM5.93.

The ex-date for the bonus issue and listing date of the warrants has yet to be determined. The warrants are barely in the money at current share price. Hence, we expect minimal conversion in the near term.

Monday, September 7, 2009

Weekly FBM KLCI Technical Perspective

From a technical perspective, a tentative breakout near the apex of a mini-triangle shape was spotted last week. If the momentum carries on, the FBM KLCI – in a consolidation phase for three weeks already – will be in a position to resume its uptrend, guided by the two parallel trend lines bordering the rising channel. (The triangle is usually considered a continuation pattern in the study of technical analysis). A positive bias should then lift the benchmark index to overcome the immediate resistance mark of 1,190 and surpass its recent high of 1,196.46 (in mid-Aug). Beyond that, the FBM KLCI will probably be eager to challenge the next resistance target of 1,230. On the downside, given the experience of short and shallow market pullbacks in the past 5½ months, we reckon the index performance will be defended by support levels of 1,160 (first) and 1,125 (second) going forward.

Report From HWangDBS

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