BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Wednesday, 11 July, 2012

Sector Update

Overweight ◄► Plantation
Down trending inventory
Export value in upward trend. Total export value continued to rise and hit RM6.49bn in Jun’12, a 2.0% increase vs. previous month’s RM6.36bn. As compared to the year low of RM5.33bn in Feb’12, it had improved significantly by 21.7%. However, y-o-y exports declined 9.7% due mainly to lower palm products prices. The average CPO price for the month was RM2,955.5/mt, 10.1% lower than the RM3,287.5/mt achieved in Jun’11. Palm oil export volume had dropped 3.4% to 1.53m tonnes due to low production cycle. Shortage of production. M-o-m, CPO production rose 6.28% to 1.47m tonnes in Jun’12. CPO production has been on an uptrend since Feb’12 (typically a low production month). Despite the improvement, CPO production volume is still insufficient to feed the palm oil export volume of approximately 1.53m tonnes. YTD, Malaysia produced approximately 7.81m tonnes of CPO, while the palm oil export volume hit above 8.21m tonnes. Inventory below 1.70m tonnes. Due to the continuous production shortfall, the inventory level has been on a declining trend since Feb’12 in order to satisfy the demand abroad. In Jun’12, the inventory level dropped 4.8% m-o-m to below 1.70m tonnes. YTD, the inventory level has declined 15.9%. Average CPO price below RM3,200/mt. Following the recent price weaknesses, the average CPO price for the first 6 months (RM3,187/mt) fell slightly below our full year estimates of RM3,200/mt. Nonetheless, concern over the El Nino impact has helped lifted the CPO price back to above the RM3,000/mt level. Judging from the recent industry statistics – shortage of supply and declining inventory level, we remain comfortable with the CPO price assumption of RM3,200/mt for 2012 and RM3,050/mt for 2013. Maintain overweight. Among the company under our coverage, Hap Seng Plant. (TP: RM3.80) remains our top pick. We maintain BUY rating on IOI Corp (TP: RM6.20), Batu Kawan (TP: RM19.80), KLK (TP: RM25.10), and Felda Global Ventures (TP: RM5.65). Downgrade IJM Plantations (TP: RM3.50) to neutral subsequent to the recent price increase. Genting Plant. (TP: RM 9.50) remains a neutral.

Ng Keat Yung nkyung@bimbsec.com.my 03-26918887 ext 181

Companies IOI Corporation Kuala Lumpur Kepong Felda Global Ventures Batu Kawan Genting Plantations IJM Plantations Hap Seng Plantations TH Plantations

Price (RM) 5.26 24.12 5.42 18.78 9.80 3.72 3.05 2.55

Market Cap (RMm) 33,807.3 25,748.2 19,773.0 8,187.2 7,436.7 2,982.4 2,440.0 1,319.0

Core Net Profit (RMm) FY11 2,222.9 1,571.4 942.2 779.5 442.0 147.2 253.0 124.8 FY12 2,177.0 1,358.7 1,145.3 628.1 419.1 157.3 218.3 111.3

FY12 Div Yield FY13 FY11 FY12 FY13 (%) 2,248.0 15.14 15.52 15.03 3.42 PER (x) 1,497.0 16.34 17.38 17.20 1,222.5 20.99 17.26 16.17 739.8 10.07 13.03 11.07 459.5 16.82 17.74 16.18 180.3 20.25 18.96 16.54 236.9 9.65 11.17 10.30 113.7 10.40 12.08 12.00 3.38 2.95 4.79 1.66 2.69 5.90 4.31

ROE (%) 17.22 18.08 19.87 16.44 12.18 11.67 11.40 14.79

Target Price (RM) 6.20 25.10 5.65 19.80 9.50 3.50 3.80 2.80

Rating Buy Buy Buy Buy Neutral Neutral Buy Buy

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11 July 2012 Palm Products Export Value
9,000 6,750 4,500 2,250 0 Sep-08 Sep-09 Sep-10 RM'm

Sector Outlook: Plantation (Overweight)

90.0% 67.5% 45.0% 22.5% 0.0%

Mar-10

Nov-08

Nov-09

Nov-10

Sep-11

Jul-08

Jul-09

Jul-10

Jul-11

Mar-08

Mar-09

Mar-11

Nov-11

May-08

May-09

May-10

May-11

Mar-12

Jan-08

-2,250 -4,500

May-12

Jan-09

Jan-10

Jan-11

Jan-12

-22.5% -45.0%

Palm Oil
Source: MPOB, BIMB Securities

Palm Kernel Oil

Other Palm Products

Y-o-Y

Q-o-Q

CPO Production vs. Export
2.25 2.00 1.75 1.50 1.25 1.00 0.75 Sep-08 Sep-09 'mn tonnes 1.4 1.3 1.2 1.1 1.0 0.9 0.8

Jul-10

Sep-10

Nov-08

Nov-09

Nov-10

Sep-11

Jul-08

Jul-09

Jul-11

Mar-08

Mar-09

Mar-10

Mar-11

Nov-11

May-08

May-09

May-10

May-11

Mar-12

CPO Production
Source: MPOB, BIMB Securities

Palm Oil Export

Production/Export

Palm Oil Inventory vs. Export
2.50 2.25 2.00 1.75 1.50 1.25 1.00 'mn tonnes 2.0 1.8 1.6 1.4 1.2 1.0 0.8

Sep-08

Sep-09

Sep-10

Jul-11

Nov-08

Nov-09

Nov-10

Sep-11

Jul-08

Jul-09

Jul-10

Mar-08

Mar-09

Mar-10

Mar-11

Nov-11

May-08

May-09

May-10

May-11

Mar-12

Inventory
Source: MPOB, BIMB Securities

Export

Inventory/Export

May-12

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

May-12

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

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11 July 2012 Monthly Average CPO Price
4,200 3,800 3,400 3,000 2,600 2,200 1,800 1,400 Nov-08 Nov-09

Sector Outlook: Plantation (Overweight)

Nov-10

Sep-11

Sep-08

Sep-09

Sep-10

Jul-08

Jul-09

Jul-10

Jul-11

Mar-08

Mar-09

Mar-10

Mar-11

Nov-11

May-08

May-09

May-10

May-11

Mar-12

Jan-09

Source: MPOB, BIMB Securities

3 month CPO Futures CPO Price

rd

Source: Bloomberg

Correlation between CPO with Soybean Price (Daily)

Source: Bloomberg

May-12

Jan-08

Jan-10

Jan-11

Jan-12

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11 July 2012 Correlation between CPO with Crude Oil Price (Daily)

Sector Outlook: Plantation (Overweight)

Source: Bloomberg

YTD Performance
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 15-Apr 22-Apr 29-Apr 1-Jul 1-Apr 8-Apr 13-May 20-May 27-May 12-Feb 19-Feb 26-Feb 11-Mar 18-Mar 25-Mar 15-Jan 22-Jan 29-Jan 6-May 5-Feb 4-Mar 3-Jun 10-Jun 17-Jun -5.0 -10.0 FBM KLCI Index KLK IJM Plantations
Source: Bloomberg, BIMB Securities

Bursa Plantation Index Batu Kawan Hap Seng Plantations

IOI Corp Genting Plantations TH Plantations

24-Jun

1-Jan

8-Jan

8-Jul

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11 July 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Sector Outlook: Plantation (Overweight)

STOCK RECOMMENDATION BUY –Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY – Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL – Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT – Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL – Share price may fall by more than 15% in the next 3 months. SELL – Share price may fall by more than 10% over the next 12 months. NOT RATED – Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analyst’s coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analyst’s coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities SdnBhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities SdnBhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

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