Given that plantation stocks tend to track CPO price, plantation stocks are set to outperform in the near term if CPO prices do rally in Q2. We maintain our 'trading buy' call on the sector given our short-term bullish view on CPO price. Our top picks are BW Plantations, Indofood Agri and Sime Darby.
During the conference, seven speakers provided their views on CPO price. The price bands for 2012 spanned RM2,590 to RM4,000 ($1,078 to $1,665) per tonne, and the mean of the average price forecast worked out to around RM3,129, lower than last year's RM3,219. Most of the presenters held the view that prices could head higher in the near term and peak in Q2 before trending down in the later part of 2012.
Our average CPO price forecast of RM2,970 appears conservative compared to the mean. We are surprised that some of the speakers expect biodiesel mandates/subsidies to be intact, growth of palm oil supply from Indonesia to be lower and crude oil prices to be higher than our forecast of US$110 per barrel.
We do not discount the possibility of CPO price reaching the RM4,000 projected by some experts as it could transpire if soybean crop damage is worse than expected, CPO output is lower and crude oil price is higher.
But we continue to hold the view that the high CPO price is unlikely to be sustained for long, as it may lead to inflationary pressure and may prompt governments to tighten monetary policies or roll back biodiesel subsidies to avoid social unrest.
We maintain our 'trading buy' call on regional planters and preference for Indonesian planters. We like the Indonesian (BW Plantations, London Sumatra, SIMP, Sampoerna Agro) and Singapore planters (Indofood Agri) for their more attractive valuations. In Malaysia, we like Sime Darby and Hap Seng Plantations.
Sector - TRADING BUY
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