ASIAN STRATEGY: Indonesian Coals and Palm Oils amongst the Cheapest Cyclicals
iSay: Sakthi has been very timely with her strategy calls lately!
Despite remained weak $62.70/t spot price (vs CS average coal price assumptions of $75/t for 2009F and $100/t for 2010F), we remain optimistic with 2010F coal price outlook, hence My Top Picks remain ITMG then BUMI and PTBA.
Amongst Indonesian CPO stocks, I continue to recommend Take Profit AALI and Buy LSIP/IFAR SP, as well as SGRO and INDF.
Sakthi Siva (Daily): Since Asia ex. Japan’s lows on 27 October, cyclicals have run hard, with materials up 52%, oils up 45% and tech up 35%, versus 32% for Asia ex. Japan. Given this strong outperformance, a key issue is whether there are any cheap cyclicals left. On our P/B versus ROE valuation model, the biggest discounts are now in Indonesian coal, drybulk shippers, Indonesian palm oil, regional steel and Chinese oils.
Indonesian coal trades at a 219% discount to the region. While this is smaller than the 270% discount seen in January, we note that Chinese coal’s discount has narrowed to 36%.
The third biggest discount is in Indonesian palm oil stocks at 104% (versus just 2% for Singapore/Malaysian palm oil stocks).
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