KUALA LUMPUR: RHB Research is downgrading its call on the PLANTATION [] sector to Neutral (from overweight) as it believes there are not many positive catalysts to move crude palm oil (CPO) prices up in the near term.
The research house said on Wednesday, June 30 that it therefore expects plantation share prices to remain lacklustre.
"Despite our now more cautious outlook for the sector for the short term, we maintain our CPO price forecasts of an average of RM2,500/tonne for 2010, RM2,700 for 2011 and RM2,500 for 2012," it said.
RHB Research said it was rolling forward its valuation targets to CY11 (from CY10). It believed earnings growth for the planters in the medium term are no longer exciting, while big premium valuations are no longer justified.
"For the Malaysian planters, we note that the premium valuations over their Singapore and Indonesia peers are back to excessive levels of 35%-45%, versus the traditional 20-30% premium," it said.
RHB Research said for the big-caps like Sime Darby, IOI Corp and KL Kepong, it had assigned a target CY11 PE of 16x (from 18x CY10) for plantation earnings.
For the mid-caps like Genting Plantations and IJM Plantations, it was assigning a target PE of 14.5x CY11 (from 16.5x CY10) and for small-caps like CBIP, it assigned a target PE of 12x CY11 (from 14x CY10).
We also reduce our target PE for First Resources to 10x CY11 (from 11.5x CY11), which is based on an unchanged 30% discount to our revised target PER for the Malaysian mid-cap planters.
"No change to our Outperform calls on IOIC, KLK, First Resources and CBIP and our Underperform calls on Sime Darby, Genting Plantations and IJMP," it said.
The research house said on Wednesday, June 30 that it therefore expects plantation share prices to remain lacklustre.
"Despite our now more cautious outlook for the sector for the short term, we maintain our CPO price forecasts of an average of RM2,500/tonne for 2010, RM2,700 for 2011 and RM2,500 for 2012," it said.
RHB Research said it was rolling forward its valuation targets to CY11 (from CY10). It believed earnings growth for the planters in the medium term are no longer exciting, while big premium valuations are no longer justified.
"For the Malaysian planters, we note that the premium valuations over their Singapore and Indonesia peers are back to excessive levels of 35%-45%, versus the traditional 20-30% premium," it said.
RHB Research said for the big-caps like Sime Darby, IOI Corp and KL Kepong, it had assigned a target CY11 PE of 16x (from 18x CY10) for plantation earnings.
For the mid-caps like Genting Plantations and IJM Plantations, it was assigning a target PE of 14.5x CY11 (from 16.5x CY10) and for small-caps like CBIP, it assigned a target PE of 12x CY11 (from 14x CY10).
We also reduce our target PE for First Resources to 10x CY11 (from 11.5x CY11), which is based on an unchanged 30% discount to our revised target PER for the Malaysian mid-cap planters.
"No change to our Outperform calls on IOIC, KLK, First Resources and CBIP and our Underperform calls on Sime Darby, Genting Plantations and IJMP," it said.
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