MacQ Positive surprise for the plantation stocks (Sunaina Dhanuka)

USDA's planting intentions report surprised the market with soybean acreage prospects coming in about 4% below streeet estimates.While this does not change the demand-supply dynamics for 2009, it does build a bullish case for the edible oils complex for 2010, in a scenario where we can assume the global economy and the demand to recover.

This, therefore, does make a positive case for getting back into the CPO space today. However, we would not recommend investors to go long the entire sector yet, as the actual plantings might turn to be different (more clarity will likely emerge by June) and valuations of some of the companies, especially the Malaysian ones such as IOI and KL Kepong are not cheap by any means.

These names are still trading at mid-teens PER, even after assuming a CPO price of US$750-800/t.

Sunaina recommends that investors look at the cheaper Indonesian names such as Astra Agro Lestari (AALI IJ) and Indofood Agri Resources (IFAR SP), that trade at a 25-40% to the Malaysian names. In Malaysia, our trading pick would be Sime Darby, which is at a 30% valuation discount to IOI and KLK.