Friday, February 11, 2011

CIMB Research downgrades regional plantation sector from Trading Buy to Neutral

KUALA LUMPUR: CIMB Equities Research is downgrading the regional PLANTATION [] sector from Trading Buy to Neutral.

The research house said on Friday, Feb 11 the downgrade was because most of the planters have outperformed the market since its sector upgrade; spot CPO price has done better than expected, is close to its peak and should head south in the second half.

CIMB Research also said the sector valuations are broadly in line with market price-to-earnings. But this is balanced by the bright earnings outlook in the current year and M&A potential.

'We raise our CPO price forecasts by 16% to US$1,100 (RM3,200) for 2011 and by 5% to US$1,000 (RM2,900) for 2012 given the smaller-than-expected supply.

'But our target prices for most planters for most planters is reduced as we scale back our target forward P/Es by 2-3 multiple points,' it said.

The research house also lowered its ratings for four stocks to Neutral and IOI Corp to Underperform. Golden Agri remains its top pick.

It favoured stocks that offer stock-specific catalysts on top of attractive valuations. Golden Agri was appealing due to its recovering output, M&A potential and sustainable initiatives to improve its brand value.

CIMB Research said it also liked Sime Darby for the newsflow on its plans to enhance shareholders' value. London Sumatra is a pick for its exposure to rubber and higher FFB yields from infrastructure put in by management two years ago.

'Following our downgrade of regional plantations, our strategist advocates a switch into coal, tin and nickel plays in Indonesia within the commodity space,' it said.

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