CIMB Plantations Sector Note - Short-term growth spurt for CPO price

Sector Note - Short-term growth spurt for CPO price - by Ivy Ng Lee Fang CFA

We are raising our CPO price forecasts by 21% to US$600 per tonne for 2009 and by 12% to US$660 per tonne for 2010 in view of the persistent drought in South America, weaker-than-expected CPO production, lower import duties for edible oils in India and higher-than-expected CPO price in 1Q09. This results in earnings upgrades of up to 95% for almost all the regional planters under our coverage. We are also adjusting upwards their target prices by 21-62% to account for our earnings upgrade and a higher target forward P/E multiple in line with the recent upgrade of our target market P/Es across the region. Sime Darby is raised to Trading Buy from Underperform, Golden Agri goes from Neutral to Trading Buy and London Sumatra is upgraded to Outperform from Neutral. Astra Agro and Hap Seng Plantations are raised to Neutral from Underperform. Our stance on the regional plantation sector is upgraded to NEUTRAL from Underweight.