March 3, 2009 16:04 GMT+8Goldman Sachs Inc. say investors should take profits on shares of plantation companies as prices of the commodity are poised to drop.
The price of crude palm oil may fall as much as 15 per cent in the next three to six months, halting a rally that’s helped plantation stocks beat their local benchmarks, analysts Patrick Tiah and Nikhil Bhandari said in a report today.
Palm oil futures have risen 9 per cent this year as output in Malaysia enters a seasonal production low, and on signs that an increase in exports this year from the world’s second-biggest producer of the commodity will continue even amid the recession.
“While long-term fundamentals have improved, we believe the recent rally has priced in too much, too soon, and is vulnerable to a short-term correction” the analysts wrote. “We think crude palm oil prices may pull back 10 to 15 per cent in the short term, and than could prompt profit-taking in the sector.”
May-delivery palm oil on the Malaysia Derivatives Exchange dropped as much as 1.6 per cent to RM1,841 (US$496) a metric ton, extending yesterday’s 1.3 per cent decline. The most-active contract traded at RM1,847 at 3.49 pm local time.
The brokerage maintained its “sell” rating on Sime Darby Bhd., the world’s biggest palm oil producer, citing “rich valuations.” Sime Darby lost as much as 2.75 per cent to RM5.30 in Malaysia, cutting its year-to-date gain to 4 per cent. Sime trades at 15 times its future profit, compared with 11.7 times for the Kuala Lumpur Composite Index.
“Plantation stocks have outperformed over the last three months, with price-to-book ratios mostly at or above mid-cycle levels while 2009 estimated price-earnings is at a premium to domestic market averages,” the analysts wrote. - Bloomberg
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