1 JUNE 2011

hALAYSIA EUITY PESEAPCH

MALAYSIA EQUITY
k08 . FF 1044l0lZ01Z
13 JUNE 2011
KN0LY PEFEP T0 THE LAST PACE 0F THS PU8LCAT0N F0P VP0PTANT
0SCL0SUPES
7+(3$/05(3257
honthIy review outIook of crude paIm oiI
JUNE 2011
2 JUNE 2011
hALAYSIA EUITY PESEAPCH
1J June 2011 Plantation Sector Update
Dutput recovering
HICHLICHTS
- Highest monthIy output in 1 months: As we had expected, CP0 output continued its rebound in Vay. However,
we are surprised that the output recorded was the highest in 19 months.
- CPD price remains strong. 0espite the strong CP0 output, the average CP0 price remained rm in Vay at PVJ,405pmt.
The yeartodate average CP0 price of PVJ,542pmt is +J9 higher than that in the corresponding period last year.
- haintaining our Ph3,400pmt average CPD price forecast for CY11: However, moving forward, we believe that
there will be some downward pressure on the price in the spot market resulting from the higher CP0 output and
inventory level. Nevertheless, stable demand mainly from China and 8angladesh coupled with the recovery in import
from ndia is expected to support the CP0 price above the PVJ,000pmt level.
- We reafrm PDSITIVE on pIantation. We retain our P0ST7E view on plantation given the healthy export gure.
The higher export in Vay reects the recovery in demand mainly from ndia and Pakistan. n the shortterm, we
are expecting the demand to remain stable. We continue to like Sime 0arby (8UY, Target price PV12.50) and Kuala
Kumpur Kepong (8UY, Target price PV24.60) because of their sizeable plantation areas that would provide higher
potential earnings growth. n addition, we believe that current portfolio review by Sime 0arby and the disposal of
some of its noncore businesses is longterm positive for its bottomline.
hPD hAPCH 2011 STATS
- CPD output cIimbs to the highest IeveI in 1-months. CP0 output in Vay 2011 grew +1J.7mom and +25.6yoy
to 1.74mmt, the highest since November 2009. The year's cumulative output of 6.84mmt was +4.J higher than
that in the corresponding period last year. The higher production gure was mainly contributed by higher output in
Peninsular Valaysia which jumped +15.Jmom to 965,687mt. Veanwhile, output from Sabah and Sarawak increased
+1J.Jmom and 8.6mom to 542,987mt and 2J1,578mt respectively. The normalized weather condition had improved
the national oil extraction rate (0EP) from 20.J1 in April 2011 to 20.56 in Vay 2011, slightly higher than its three
year average of 20.J8. n addition, the FF8 yield in Vay 2011 also improved by +11.8mom to 1.79mt/ha.
- Higher output resuIted in higher inventory and stock-to-usage ratio. nventory increased +J0.0mom and +22.8yoy
to 1.92mmt, the highest level since February 2010. n addition, the stocktousage ratio increased 0.9point from
9.1 in April 2011 to 10 in Vay 2011. This was mainly due to the higher CP0 output and import of palm oil coupled
with lower consumption. The import of palm oil in Vay 2011 surged +67.2mom to 105,976mt while consumption
dropped J.9mom to 196,896mt. The higher inventory is expected to impart some pressure on the CP0 price, unless
imports are reduced in the coming months. n addition, improving demand from ndia and 8angladesh as well as
lower output from other vegetable oils will provide some cushion on the CP0 price moving forward.
- Higher demand from India pushed totaI export to the highest IeveI in 2011. Total export in Vay increased +5.Jmom
and +2.7yoy to 1.4mmt driven by higher demand from ndia and Pakistan. Export to ndia almost doubled and
registered +7J.7mom and +76.7yoy higher to 118,671mt. n addition, total export to Pakistan jumped +21.7mom
and +11.6yoy to 1J6,55Jmt. We believe that export to South Asia and Viddle East will be elevated in the nearterm
in order to stockpile for Pamadhan, which is expected to commence on August 1.
Zulkii Hamzah Jasmaliha Jaafar
jasmaIiha@midf.com.my
+60J 27721655
3 JUNE 2011
hALAYSIA EUITY PESEAPCH
hALAYSIA: hDPE ENICN WEATHEP EXPECTE0
- La-Nina continues to weaken. As reported by the Valaysian Veteorological 0epartment, the LaNina
weather phenomenon continues to weaken and Valaysia will experience ENS0Neutral conditions in
Vay to July. Peninsular Valaysia is expected to receive a national average level of rainfall around
400mm to 500mm in June to September, which is good for general palm plantation, especially fertilizer
application, as well as harvesting. However, a few parts in Sabah and Sarawak are expected to receive
below national average rainfall, which is normal for the part of Valaysia in the third quarter.
- Larger footprint evidence aIso conrmed normaIizing weather: The Southern 0scillation ndex (S0),
which is a regional measure of weather conditions monitored by the Australian 8ureau of Veteorology,
dropped sharply in Vay 2011 to 2.1 points from 25.1 in April, its lowest level since July 2010. A gure
of 8 to +8 indicates a normal weather condition.
SUPPLY FACTDPS: SUPPLY DF SUSTITUTES CDNTINUE TD E CDNSTPICTE0
- hississippi ood disrupted crops. The excessive rain and snowmelt in early Vay had resulted in severe
ood in nearly Jm acres of farmland in southern USA and has disrupted planting activities for corn,
soybean, rice and wheat. The farmers are expected to start replanting in June after the water has
MONTHLY CPO OUTPUT AND EXPORT
1,000
1,200
1,400
1,600
1,800
2,000
2,200
M
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Production Export
PALM OIL EXPORT TO MAJOR COUNTRIES
0
50
100
150
200
250
300
350
400
450
500
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9
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CHINA P.R PAKISTAN INDIA UNITED STATES
MONTHLY OIL EXTRACTION RATE (%)
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
M
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PeninsuIar MaIaysia Sabah/Sarawak 3 Years NationaI Average
STOCK-TO-USAGE RATIO
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
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4 JUNE 2011
hALAYSIA EUITY PESEAPCH
receded. The US0A projected the US soybean production in 2011 to be 2.2yoy lower to 89.4mmt.
- East haIaysia and Indonesia is getting hotter. The Valaysian Veteorological 0epartment also reported that weather
is expected to be generally hotter during the Southwest monsoon (from Vay to Sept) and this is likely to result in
forest burning in Kalimantan, Sumatera and Sarawak. n such a scenario, CP0 output will also be affected.
0EhAN0 FACTDP: CHINA NEE0S TD PEPLENISH THE STDCKS
VegetabIe oiIs consumption is expected to be higher during summer. Demand for vegetable oils mainly from ndia
and China is expected to increase in the coming months as winter season ended. USDA has forecast the vegetable oils
consumption from China and ndia to increase by 8.8%yoy and 17.5%yoy to 56.23mmt and 189.31mmt respectively.
n addition, import of CPO from ndia and Bangladesh are expected to be higher in the near-term as festive seasons
coming.
DUTLDDK AN0 PECDhhEN0ATIDN
- haintain PDSITIVE on pIantation sector. We retain our P0ST7E view on plantation as we are expecting stable
demand mainly from ndia, China, 8angladesh and VENA countries. We reiterate our PVJ,400pmt of average CP0
price forecast for CY11. We continue to like Sime 0arby and KLK because we believe that their sizeable plantation
areas as well as lower production costs place them in a better position to deliver higher earnings growth moving
forward. For small cap plantation stocks, we continue to like TSH Pesources because of the large immature areas
that would provide potential doubledigit earnings growth.
Soybean Production (miIIion tonnes)
2007 2008 200 2010 2011F
USA 87.0 72.9 80.7 91.4 89.4
raziI 59.0 61.0 57.8 69.0 72.5
Argentina 48.8 46.2 J2.0 54.5 5J.0
WorId TotaI 2J7.1 221.1 212.0 260.1 262.8
Source: 0S0A
VegetabIe oiIs: Import and consumptions (miIIion tonnes)
2007 2008 200 2010 2011F
IhPDPT
China 9.88 10.72 11.58 11.12 1J.18
ndia 5.44 5.92 8.79 9.08 8.87
CDNSUhPTIDN
China 128.50 1J6.9J 14J.85 161.17 189.J1
ndia J9.58 42.89 48.09 51.69 56.2J
Source: 0S0A
5 JUNE 2011
hALAYSIA EUITY PESEAPCH
SUhhAPY TALES
FINANCIAL SUhhAPY DF STDCKS UN0EP CDVEPACE
Company Pec.
Price @
10 June
2011
(Ph)
Target
Price
(Ph)
EPS (sen) EPS Crowth (X) PEP (X) 0iv yieId (X)
FY11f FY12f FY11f FY12f FY11f FY12f FY11f FY12f
SVE 0AP8Y UY .20 12.50 50.90 55.J0 100 8.6 18.1 16.6 2.9 J.J
0 UY 5.28 6.24 J1.26 J5.05 2.9 12.5 16.9 15.1 J.0 2.9
KL KEP0NC UY 22.00 24.60 119.7 125.9 26.0 5.0 18.4 17.5 1.8 1.8
CENTNC PLANT. UY 7. 10.55 58.62 66.79 J7.1 1J.9 1J.6 11.9 1.0 1.1
KULV UY 3.60 4.10 J2.J7 J4.79 12.0 7.0 11.1 10.J 0.6 0.6
SAPAWAK 0L PLAV UY 3.8 4.45 J9.50 45.56 14.4 15.4 10.1 8.7 0.6 0.6
TSH PES0UPCES UY 3.0 4.00 26.65 29.14 26.9 9.4 11.6 10.6 1.6 1.6
TH PLANT UY 2.04 J.25 22.26 24.56 21.5 10.J 9.2 8.J 4.1 4.5
SAPAWAK PLANT UY 2.52 2.8J 20.78 22.80 68.9 9.7 12.1 11.1 J.7 4.1
FY12f FY13f FY12f FY13f FY12f FY13f FY12f FY13f
*JV PLANT UY 2.2 J.52 20.24 22.06 10.2 8.9 14.4 1J.2 J.1 J.0
FYE Mcrch
Foreccst by Ml0F Resecrch
hPD Pam DiI Statistics (Tonnes)
hay-10
2011
2010
YT0
2011
ApriI hay m-o-m y-o-y YT0 y-o-y
Dpening Stock 1,622,580 1,418,980 1,670,762
Production 1,J85,424 1,5J0,009 1,740,252 1J.7 25.6 6,557,004 6,8J8,727 4.J
Imports 114,J97 6J,J91 105,976 67.2 7.4 494,885 657,221 J2.8
Exports 1,J65,6J7 1,J44,680 1,402,071 4.J 2.7 6,804,695 6,J00,8JJ 7.4
Consumption 194,441 192,024 196,896 2.5 1.J 924,128 879,772 4.8
CIosing Stock 1,562,J2J 1,475,676 1,918,02J J0.0 22.8 8,6JJ,020 8,100,624 6.2
Source: MPO8
hajor PaIm DiI Exports 0estination (Tonnes)
hay-10
2011 2010
YT0
2011
ApriI hay m-o-m y-o-y YT0 y-o-y
China JJ1,90J J02,J17 J15,889 4.5 4.8 1,702,127 1,J79,45J 19.0
EU Countries 144,9J5 159,891 105,18J J4.2 27.4 8J0,091 650,550 21.6
Pakistan 122,J72 112,168 1J6,55J 21.7 11.6 785,566 599,200 2J.7
India 67,168 68,J16 118,671 7J.7 76.7 462,879 J99,884 1J.6
USA 148,290 76,192 68,670 9.9 5J.7 454,471 418,179 8.0
TotaI 1,J65,6J7 1,J44,680 1,402,071 4.J 2.7 6,804,764 6,J1J,771 7.2
Source: MPO8
6 JUNE 2011
hALAYSIA EUITY PESEAPCH
DAILY CPO PRICE CHART
7 JUNE 2011
hALAYSIA EUITY PESEAPCH
DISCLAIMER
This report has been prepared by MDF AMANAH NVESTMENT BANK BERHAD
(23878-X). t is for distribution only under such circumstances as may be permitted by
applicable law.
Readers should be fully aware that this report is for information purposes only. The
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makes no representation or warranty, expressed or implied, as to the accuracy,
completeness or reliability of the information contained therein and it should not be
relied upon as such.
This report is not, and should not be construed as, an offer to buy or sell any securities
or other fnancial instruments. The analysis contained herein is based on numerous
assumptions. Different assumptions could result in materially different results. All opinions
and estimates are subject to change without notice. The research analysts will initiate,
update and cease coverage solely at the discretion of MDF AMANAH NVESTMENT
BANK BERHAD.
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MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS
STOCK RECOMMENDATIONS
BUY Total return is expected to be >15% over the next 12 months.
TRADNG BUY
Stock price is expected to rise by >15% within 3-months after a Trading Buy
rating has been assigned due to positive newsfow.
NEUTRAL
Total return is expected to be between -15% and +15% over the next 12
months.
SELL Negative total return is expected to be -15% over the next 12 months.
TRADNG SELL
Stock price is expected to fall by >15% within 3-months after a Trading Sell
rating has been assigned due to negative newsfow.
SECTOR RECOMMENDATIONS
POSTVE
The sector is expected to outperform the overall market over the next 12
months.
NEUTRAL The sector is to perform in line with the overall market over the next 12 months.
NEGATVE
The sector is expected to underperform the overall market over the next 12
months.
8 JUNE 2011
hALAYSIA EUITY PESEAPCH
Business Address:
11 & 12 th FIoor, Menara MIDF,
82, JaIan Raja ChuIan, 50200
KuaIa Lumpur.
TeI: 2173 8888
Fax: 2173 8380
Nl0f l8l$1Nl81 8l$l808 is part of
MIDF Amanah Investment Bank Berhad (23878 - X)
(Bank PeIaburan)
(A Participating Organisation of Bursa MaIaysia Securities Berhad)