Tuesday, January 7, 2014

Singapore 2014 Outlook -Plantations Sector - Staying put (DBSV)

Plantations Sector
(Underweight)
Staying put

• CY14 CPO price forecast of RM2,570 unchanged; expect higher prices in 1H14 but softer in 2H14
• Macro headwinds abound; watch out for more soybean oil supplies
• Risks: Lower-than-expected output, weak USD and higher biodiesel consumption
• Top BUYs: Bumitama Agri, Wilmar International


Outlook
A flattish year ahead.
We expect palm oil prices to average RM2,570 in 2014 – relatively flat from current level. Following a near-term correction, palm oil prices are expected to marginally rise during the low-crop season between Jan14 and May14, before giving way to higher supplies between Jun14 and Dec14.

Watch out for headwinds.
We believe there are three main factors to watch in the coming year. Firstly, potentially lower soybean oil prices from: (a) Proposed scale-back in US RFS2 (Renewable Fuel Standard) mandatory blends, (b) Proposed nationwide trans-fat ban in the US, (c) Further depreciations in Argentine Peso and Brazilian Real, (d) EU anti-dumping tariff on Argentine biodiesel, and (e) Stronger demand for soybean meal (hence higher soybean oil supplies). Secondly, potential tightening of US monetary stimulus and funds exiting commodities. Thirdly, Indonesian palm oil take up for energy use could come in far below target.

More positive longer term.
Although we believe palm oil price’s long-term prospects remain positive (given supply growth constraints in Indonesia); we think these factors may cap any significant price gains of both palm oil and plantation stocks alike. We recommend laggards and volume-leveraged counters.

Risks
Higher-than-expected palm oil prices.
Robust biodiesel consumption in Indonesia and Malaysia may push palm oil prices higher than our forecasts. A weaker US Dollar means higher commodity prices, including palm oil. Lower-thanexpected FFB yields may also boost palm oil prices higher than our expectations.

Regulatory uncertainties.
Changes in import/export taxes would impact the dynamics in palm oil demand, and hence prices. Regulations pertaining to forestry conversion moratorium, maximum concession and biodiesel mandates may also impact palm oil demand/supply.

Valuations & Stock Picks
We recommend investors to stick with Bumitama Agri and Wilmar International, which we believe remain undervalued despite the recent surge in plantation share
prices.

2013 in review
Earnings dropped.
Reflecting the drop in palm oil prices, planters’ earnings have deteriorated between 1QCY13 and 3QCY13. Earnings were additionally hit by higher wages, translational FX losses, and regulatory changes affecting new planting in Indonesia (i.e. limiting concessions to 100k ha and renewal of Forestry Conversion Moratorium). Malaysia’s newly imposed export taxes in Jan13 and rising refining capacity in Indonesia also slashed Indonesian refining margins, despite its favourable export tax structure. Nevertheless, a clampdown on shadow banking in China helped to improve oilseed crush margins for Wilmar.

Malaysian planters’ performance diverged.
During the year, plantation counters’ performances in Malaysia diverged from those listed in Singapore and Indonesia, as broad-based selldowns were largely avoided in Malaysia. For the year, Malaysian planters advanced by 7%, while those in Singapore and Indonesia netted -18% and +3% respectively.

Narrowing price discount.
Palm oil price’s discount to soybean oil’s remained sizeable for most of 2013, even though global palm oil inventory (ex-Indonesia) peaked at the end of Feb13. Palm oil prices rebounded only in Oct13, as global inventory fell to a 20-month low, prompted by a global demand recovery and unexpectedly poor Indonesian FFB yields.

The biodiesel issue.
In 2013, we also saw anti-dumping tariffs imposed by the EU Commission on Indonesian and Argentine biodiesel exports, followed by increased biodiesel mandates in Indonesia in an effort to reduce diesel imports. Towards the end of the year however, the road to implementing the mandatory blend proved long and winding.

Rebound peaked in Dec13.
Meanwhile, the rebound in spot palm oil prices that began at the end of Sep13 peaked in early Dec13, as narrowing price discount diminished palm oil’s competitiveness relative to soybean, rapeseed and sunflower oils.

Our calls were timely.
 In late Sep13, we recommended to accumulate plantation counters, as we had expected palm oil prices to recover amid a 20-month low global inventory. Since then, both palm oil prices and regional plantation stocks have rebounded by 7% and 4-16% respectively. Yet, as the strong recovery quickly eroded palm oil’s competitiveness vis-à-vis other vegetable oils, in mid Dec13 we downgraded our calls on plantation counters, except for laggards. Since then, both palm oil prices and regional plantation stocks have shed 3% and 1-6% respectively (up to 20 Dec13).

2014 outlook
Expect a flattish 2014.
We expect palm oil prices to average RM2,570 in 2014 – relatively flat from current level. Following a near-term correction, we expect palm oil prices to marginally increase during the low-crop season between Jan14 and May14, before giving way to seasonally higher supplies between Jun14 and Dec14.

Staying put.
We continue to see positive long-term prospects for palm oil prices, as global supply growth is forecast to lag that of demand from 2016 onwards. We believe the drop in new planting in Indonesia since 2012 is unlikely to reverse, while expansions in Africa may take at least 10 years to make any difference. There are three key issues to watch over the next twelve months. Firstly, potentially lower soybean oil prices from: (a) Proposed scale-back in US RFS2 (Renewable Fuel Standard) mandatory blends, (b) Proposed nationwide trans-fat ban in the US, (c) Further depreciations in Argentine Peso and Brazilian Real, (d) EU antidumping tariff on Argentine biodiesel, and (e) Stronger demand for soybean meal (vs. soybean oil). Secondly, potential tightening of US monetary stimulus and funds exiting commodities. Thirdly, Indonesian palm oil take up for energy use could come in far below target. We believe these factors may cap any significant price gains of both palm oil and plantation stocks alike.

Risks to our call
Strong palm oil prices.
Robust biodiesel consumption in Indonesia and Malaysia may push palm oil prices higher than our forecasts. A weaker US Dollar means higher commodity prices, including palm oil. Supply disruptions caused by weather anomalies may also boost palm oil/soybean oil prices higher than our expectations.

Regulatory uncertainties.
Changes in import/export taxes (e.g. potential hike in Indian refined oils import duty) would impact the dynamics in palm oil demand, and hence prices. Changes in regulations (e.g. pertaining to forestry conversion moratorium, maximum concession and biodiesel) may also affect the supply of palm and soybean oils.

Our stock picks
We recommend investors to stick with Bumitama Agri and Wilmar International, which we believe remain undervalued despite the recent surge in plantation share prices.




Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 03/01/13

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做自己熟悉的事,等到发现大好机会才投钱下去

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高估期间, 卖对, 不卖也对, 买是错的。
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Tan Teng Boo


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成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
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