Malaysia’s Plantation – Maintain Market Weight

Malaysia’s Dec 16 palm oil inventory was higher than expected at 1.67m tonnes vs 2015’s 2.63m tonnes, but still reflected a decline of 36.8% yoy on the back of weaker production. In 2017, the market expects production to recover to 19.5m-20.0m tonnes and this will largely take place in 2H17. Average CPO price for 2017 is expected at RM2,600/tonne (2016: RM2,653) as production is likely to recover and inventory is expected to pile up in 2H17. Maintain MARKET WEIGHT.

MALAYSIA PALM OIL BOARD DATA SUMMARY

WHAT’S NEW
End-Dec 16 palm oil inventory level at 1.67m tonnes. Palm oil inventory came in higher than market expectations at 1.67m tonnes in Dec 16 on the back of weaker-than- expected exports despite CPO production declining by a smaller 6.4% mom vs consensus forecast of -8.2% to -9.5% mom. Inventory level dropped 36.8% yoy, mainly due to weak production (-13.2% yoy) and weak palm oil imports (-45.0% yoy).

Malaysia’s CPO production for 2016 within our expectation. CPO production of 17.3m tonnes (-13.2% yoy) in 2016 was within our and market expectations of 17.0m-17.5m tonnes. CPO production is likely to stay weak in 1Q17 as it is a seasonally weak production period and the lagged impact from the drought has not tapered off yet. Thus, inventory is likely to stay low in the near term and this will support CPO prices. We expect Malaysia’s CPO production to pick up strongly in 2H17 on a yield recovery. The market is expecting Malaysia’s CPO production at 19m-20m tonnes for 2017.

GENP likely to have been a beneficiary of the CPO price uptrend in 4Q16. Although 4Q16 saw across-the-board qoq production declines, we expect this would have been offset by the 13.0% qoq increase in CPO prices. This suggests that upstream players which are more involved in spot sales and registered smaller production declines are likely to report better qoq earnings for 4Q16. Within our coverage, we note Genting Plantations (GENP) and Sarawak Oil Palms (SOP) reported CPO prices which were tracking closer to Malaysian Palm Oil Board’s (MPOB) spot prices. This could have been due to most of GENP’s and SOP’s sales being spot sales. Of these two, GENP is likely to benefit from CPO prices rally as its 4Q16 FFB production was up 21.4% qoq, while SOP is likely to register lower qoq production.

ACTION
 Maintain MARKET WEIGHT. Among Malaysia small- to mid-caps, we like Kim Loong (KIML/BUY/Target: RM4.20) as its earnings growth is supported by: a) recovery in FFB production, b) good milling margins from recovery of its oil extraction rate, and c) extra income from value-add by-products. Kim Loong had recently announced a special DPS of 5 sen and this lifted its FY18 DPS outlook. We are assuming similar payout ratio of 75% for FY18, translating to dividend yield of 7%.

ESSENTIALS
Production increased yoy after 11 months of decline. In Dec 16, CPO production dropped 6.4% mom, but registered its first yoy increase after 11 consecutive months of decline. The weaker production mom was mainly due to a seasonally low production period and harvesting activities being affected by rainfall. The yoy increase was supported by the recovery of FFB yield, where Peninsular Malaysia and Sarawak production increased 15.1% yoy and 7.0% yoy respectively in Dec 16. However, Sabah’s production still down mom and yoy mainly due the lagged impact from the two consecutive years of severe drought.

National FFB yield is stabilising. Malaysia’s FFB yield of 1.36 tonnes/ha was above the lower end of the five-year range of 1.35 tonnes/ha (refer RHS chart) in Dec 16. Peninsular Malaysia’s FFB yield improved yoy to 1.38 tonne/ha in Dec 16 (+9.5% yoy), an indication of stabilising yields. However, Sabah’s/Sarawak’s FFB yields were still lower yoy and below the five-year range of 1.34 tonnes/ha. For 2016, Malaysia’s FFB yield declined to 15.91 tonnes/ha from 18.48 tonnes/ha in 2015. All in all, we expect FFB yield to stay low in 1H17 and normalise in 2H17.

Exports were down yoy in 2016, mainly due to weaker exports to all key importing countries except Pakistan. India and China recorded the largest yoy decline in imports, down 23.5% and 20.9% in 2016. In Dec 16, exports to China decreased 27.0% mom, likely due to weak demand during the winter season. On the other hand, exports to India were up 25.4% mom on stock replenishment.

Average CPO price for 2016 beat our expectation. Average CPO price increased 23.2% yoy to RM2,653/tonne in 2016, above our expectation of RM2,500/tonne. We reckon CPO prices are likely to stay high at RM2,800-3,300/tonne in 1Q17, supported by low inventory level and stable demand. Nevertheless, CPO prices are likely to trend down in 2H17 when production picks up. All in all, we are expecting CPO price to average at RM2,600/tonne for 2017. Although we reckon 2017’s average CPO price could come in higher than our expectation of RM2,600/tonne, we would like to keep to our assumption at this point, given that commodity prices are very volatile.

Timeline to implement B10 programme. We gather the B10 programme is ready to be put into action and the key issue that caused the recent delay in B10 implementation was the huge price differential between crude oil prices and palm oil prices. During a sharp recovery in production which we expect would come in late-3Q17, the B10 programme would prevent a sharp decline in CPO prices.

SECTOR CATALYSTS
 Weather disruption. Agricultural production is impacted by extreme weather. Any negative impact from the weather would be positive to prices.

ASSUMPTION CHANGES
 We maintain our CPO price expectations of RM2,600/tonne for 2017 and RM2,500/tonne for 2018.

RISKS
 Backtracking of biodiesel mandates in Indonesia and Malaysia.

source: UOBKayHian 11/1/2017

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Inch Kenneth – Buy At RM0.85-RM0.90

Symbol & Code : INCKEN (2607)

Daily Chart – Inch Kenneth Kajang Rubber PublicLtd Co (click to enlarge) 

After breaking out of the "Rising Wedge" pattern earlier this month, INCKEN rose as much as 25 sen (29%) to an intraday high of RM1.12  within just 4 days before surrendering much of its prior gains. We reckon that with the key indicators still on a downwards move, the selling pressure would likely continue for a few more days.

Nevertheless, the overall uptrend remains intact, and we expect buying interest to return at the 85 sen - 90 sen levels. As such, we recommend that traders keep a keen watch on the stock, and perhaps position themselvesfor a buy in should the share price return to those levels. Should the entry price be triggered, traders may target the 98 sen and RM1.12 resistance levels, while a stop-loss of 81 sen should be placed.

by Kenanga Research

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Felda Global Ventures - Subdued Core Results

FGV stock code 5222  
Share price:  MYR4.55 Target price:  MYR4.55 (from MYR5.20)

All segments weaker. 3Q12 net profit of MYR246m (+30% QoQ, -40% YoY) was lifted by a MYR47m disposal gain on quoted investments. Excluding this one-off, 3Q12 core net profit of MYR199m (-9% QoQ, -51% YoY) was below our and consensus expectations with 9M12 core net profit of MYR618m (-49% YoY) at 59% of our full-year forecast and 68% of consensus. The plantations and sugar divisions were the key culprits. We cut our FY12-14 net profit forecasts by 28%/13%/13% and lower our TP to MYR4.55 (-13%) on an unchanged 15x mid-CY13 PER. Maintain HOLD. FGVH’s re-rating catalyst lies with the deployment of its MYR4.4b IPO proceeds for earnings-enhancing M&As.

CPO production and ASP weaker than expected. FGVH’s plantation division (including 49%-owned FHB) posted a 3Q12 pretax profit of MYR220m (-22% QoQ, -40% YoY) on lower CPO ASP (-12% QoQ, -8% YoY) and flattish FFB output QoQ (-17% YoY) due to tree stress and its replanting programme (despite our earlier belief that FFB output grew 4% QoQ in 3Q12). This led to 9M12 FFB output of 3.47m tonnes (-9% YoY), just 68% of our previous full-year forecast. Hence, we have deepened our FY12 FFB contraction assumption to 8% YoY (previously-2% YoY).  We also downgrade  our industry-wide  2012 CPO ASP assumption to MYR2,950/t (-6%, from MYR3,150/t).

Sugar segment fared poorly. The sugar division posted a lower-than-expected pretax profit of MYR70m in 3Q12 (-11% QoQ, 0% YoY). Operations were affected by higher raw sugar costs  in the current quarter, as the raw sugar received under its long-term contract was more expensive than spot purchases. Meanwhile, its North American operations posted a relatively flattish pretax loss of MYR18m.

Earnings forecasts revisited. We believe FGVH is likely to post its weakest profits in 4Q, as CPO ASPs have weakened by MYR500-600/t from 3Q12. Hence, we have cut our FY12-14 net profit forecasts for FGVH mainly on (i) lower CPO ASPs (-MYR200/t) for FY12 (while maintaining our FY13-14 CPO ASP of MYR3,000/t), (ii) lower FFB output for FY12/13/14 by 7%/5%/5%, and (iii) lower earnings from sugar division (-11%-12% for FY12-14).

Felda Global Ventures – Summary Earnings Table:

Felda Global Ventures is an integrated global agricultural player focused on three primary commodities – palm oil, rubber and sugar. It is the world’s third largest listed oil palm plantation operator by planted hectarage (323,587 ha) and Malaysia’s leading refined sugar produce

by MIB

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MHC Weekly Chart - Short Term Buy (Technical)

MHC – MYR1.90 (Stock Code: 5026)  (Bloomberg Code: MHC MK Equity)

MHC  made  a  major  weekly  Wave  4  low  at  RM1.00  (in  Sep  2011)  with  grossly  oversold  and  bullish  signals. Due to its firmly positive weekly chart signals, the indicators are pointing firmly upwards to a move towards the
resistance  and  upside  target  areas  of  MYR2.11,  MYR2.47  and  MYR2.58  in  the  short  term. 

We  advocate  a SHORT-TERM BUY (TECHNICAL) on MHC on dips, with stop-loss at MYR1.66.

MHC’s principal operations  include  the  cultivation  of  palm  oil  and  the  management  of  Teluk  Anson  hotel. Based on their 4Q2011 results, the group’s profit before tax (PBT) increased by 28.38% from MYR 24.63m to MYR31.62m. In addition to that, the group’s EPS has advanced by  28.4%  from  17.54sen  per  share  to 22.52sen  per  share.  The  increase  in  prices  of  Fresh  Fruit  Bunches  (FFB)  and  yield  by  23%  and  2% respectively mainly contributed to the advancement in its PBT. Furthermore, there was recognition of negative goodwill of MYR1.27m which arose from the acquisition of additional shares in an associate during the current quarter, as well as increased contributions from the associated companies. 

The profitability for the last quarter is  lower than  the  immediate preceding quarter  mainly due to decrease  in FFB  production  and  price  by  10%  and  4%  respectively. Moving forward, MHC’s board  is  confident  that  the
group’s prospects would remain satisfactory in view of favourable palm oil prices and strong demand of palm oil, barring any unforeseen circumstances. Further to the upward trend of CPO prices, MHC also declared  a bonus issue on the 21 March 2012. However, it has yet to confirm the ex-date of the bonus issue. 

Maybank  IB  does  not  have  fundamental  coverage  on  MHC.  A  check  on  Bloomberg  reveals  that  no  other research house has initiated coverage on the counter at this point in time. The stock is trading at PER  of 8.4x
and has an indicated dividend yield of 1.06%.

Recommendation
MHC  made  a  major  weekly  Wave  4  low  at  RM1.00  (in  Sep  2011)  with  grossly  oversold  and  bullish signals. Due to its firmly positive weekly chart signals, the indicators are pointing firmly upwards to a move  towards  the  resistance  and  upside  target  areas  of  MYR2.11,  MYR2.47  and  MYR2.58  in  the short  term.

We  advocate  a  SHORT-TERM  BUY  (TECHNICAL)  on  MHC  on  dips,  with  stop-loss  at MYR1.66.

HC Plantations Berhad (MHC) is an investment holding company whose subsidiary cultivates oil palm and rubber, sells fresh fruit bunches, and operates a mill. It also operates a hotel and develops properties.

by Maybank Investment Bank

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THPLANT – MYR2.72 Short-Term Buy (Technical)

THPLANT  (stock code 5112) reached a significant weekly Wave 4 low at RM1.85  in August 2011 with grossly oversold and bullish chart signals. Due to all its positive indicators, it is likely to surge to its obvious upside Wave 5 targets (of MYR3.00, MYR3.38 and MYR4.04) and resistance level (and all-time high) of MYR2.73.

SHORT-TERM BUY (TECHNICAL) on dips for THPLANT, with stop-loss at MYR2.27 abpve: THPlant Weekly chart (clcik to enlarge)

The weekly indicators (such as the CCI, DMI, MACD, Oscillator and Stochastic) are positive and now depict fine indications of THPLANT’s prolonged price strength. We expect THPLANT to remain firm on any dips to its support levels of MYR2.29 and RM2.72. It will attract some major buying at those levels. The only resistance level (and all-time high) of MYR2.73 will offer token selling activities. Our technical upside targets for THPLANT are MYR3.00, MYR3.38 and MYR4.04. Stop-loss is at MYR2.27.

below: THPlant Fundamentals and Technicals 
On 11 November 2011, THPLANT acquired 19,782ha of land, increasing its total land bank by 50% to 59,153 ha. Of the 19,782ha of land that was newly acquired, only 694ha was planted while the remaining portion is classified as “green-field”.  

The immediate impact on THPLANT’s profitability remains neutral. Our analyst estimates  that  the marginal increase in Fresh Fruit Branches (FFB) production from the acquired planted land would raise our net profit estimates by 2.2-3.4%, while  the  green-field  land would only generate significant impact on earnings after 2014 if THPLANT begins the planting in 2012. In the longer  term, THPLANT is expected to benefit from the new plantation but in the immediate term, our analyst has a Hold call on TH Plantations. 

Our fundamental analyst has a Neutral call on the plantation sector,  as Malaysian palm oil stockpiles remained high for the fifth month consecutively, at 2.01m tonnes. In view of the downward revision in soybean crop estimates by USDA and Oil World due to the weather, our plantation analyst is looking to lift our 2012 CPO average selling price  (ASP)  assumption by 7.7% to RM2,800/t (from RM2,600/t) this coming result season. We are also expecting February stockpiles to be lower (at 1.9m-2.0m tonnes) as February has fewer working days.

Currently, Maybank IB has a Hold call on THPLANT with a target price of MYR2.04 (which was exceeded in January 2012). A check of Bloomberg consensus data reveals that four other research houses have coverage on THPLANT, and all have buy calls on the stock. The stock currently has an indicated dividend yield of 4.7% and trades at PBR of 2.3x.

TH Plantations Berhad (THPLANT) is an investment holding company. It also cultivates oil palm, processes FFB, markets CPO, PO and FFB, as well as provides management services.

by Maybank Investment bank

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Accumulate TDM - Maybank

TDM Stock Code :2054 Price: RM4.72

Our featured stock this week is TDM Berhad (TDM). The company is an upstream oil palm plantation player as well as the operator of  three specialist medical centers  in Malaysia. Currently, the company owns 25,000 hectares of land in Indonesia and 37,000 hectares of land in Terengganu. This brings the total land bank TDM owns and manages to 62,000 hectares. The company is  in the process of acquiring a hospital in the Klang Valley, and plans to build two more new hospitals on the East Coast over the next three years. 

above: click to enlarge

Maybank IB research recently released a Non-Rated report on TDM where we highlighted the fair value of the stock to be at MYR5.50, significantly higher than the current share price of MYR4.72. We feel that TDM is deeply undervalued due to  a  lack of analyst coverage, its relatively thin trading volumes and shareholding structure which  lacks  institutional ownership apart  from  the Terengganu government’s 63%  stake. However, over the past five years, TDM has successfully divested all of its non-core businesses, raised FFB yields and turned most of its hospitals profitable.

TDM Berhad (TDM),  through its subsidiaries,  manages oil palm plantations, trades palm oil and related products. The company also provides consultancy and management services to specialist medical centers.

above: TDM Daily chart (click to enlarge)

TDM  reached a significant weekly Wave 4 low at MYR2.60 in early October 2011 with grossly oversold and bullish chart signals. Due to all its positive indicators, it is likely to surge to its obvious weekly upside Wave 5 targets (of MYR5.27, MYR5.42 and MYR5.90) and resistance levels above. ACCUMULATE (TECHNICAL) on dips for TDM, with stop-loss at MYR3.93

The weekly indicators (such as the CCI, DMI, MACD, Oscillator and Stochastic) are positive and now depict fine indications of TDM’s prolonged price strength. We expect TDM to remain firm on any dips to its support levels of MYR3.95 and RM4.72. It will attract some major buying at those levels. The only resistance level (and all-time high) of MYR4.84 will offer token selling activities. Our  technical upside targets for TDM are
MYR5.27, MYR5.42 and MYR5.90. Stop-loss is at MYR3.93.

above: TDM Quarterly Earnings (click to enlarge)

by Maybank Investment Bank

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KWANTAS Trading Buy

Trading Buy – KWANTAS  Corporation Bhd Stock Code 6572

Chart wise: Kwantas Corporation Bhd (6572) – Plantations – RM1.91.
above : Kwantas Daily Technical Chart (click to enlarge)

Kwantas’s candles have followed market trend by staging a strong runup yesterday to test the upper line on flag formation still inside the flag formation.  In the process it also breached the short-term and pulling up its core momentum indicators. The lagging MACD is also improving and may cross the trigger line if there is follow through buying. 

With the indicators still strengthening, the breach of flag  formation could well become a reality and if so, there are trading buy opportunities.  However,  if the follow through
buying fails to materialize and the candles fall back inside the flag formation, the stock is an avoid. On the upside, the resistance is at RM2.00. The support is at RM1.80.

by Mercury Securites

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Incken - Inch Kenneth : sideway with upward bias expected

Chart wise : Range bound …….
Inch Kenneth (stock code 2607) had on 2/6/2010 crossed over the downward sloping trend line extended from day high of RM0.545 (6/5/2010) to connect the other day high of RM0.505 (20/5/2010) with a day high of RM0.50 before settled at RM0.495.

above: click to enlarge the chart 

Price Direction ….. 
In view of an increase in market participation, the stock could be expected to trade sideways with upside bias in coming day(s). Overhead resistance and support are pegged at  RM0.505  and RM0.465 respectively. 

What to watch for …. 
A turnaround of prices to close above RM0.505 level would see the stock going for RM0.55 target.

by Mercury Securities

Inch Kennecth is involved in investment holding and carries on the business of an oil palm grower. The subsidiary undertakings are engaged in the operations of a tourist resort, retailing building supplies, property development and leasing of properties.

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