Our CPO analyst Wilianto maintains his bullish view on CPO. Top picks in Indonesia are London Sumatra (LSIP IJ), Bakrie Sumatra (UNSP IJ), and Sampoerna Agro (SGRO IJ).
Is the “little boy” back? Well, El Nino is Spanish for little boy. And Wili highlights today that the chances for it to happen are raised from 25% to over 50% by the Australian weather bureau, and increased to 45% by IRI.
US$ debasement risks + rising oil prices + slow soybean planting in the US + rising El Nino chances = tailwinds to CPO prices.
The negative impact of El Nino to palm oil production normally appears six to twelve months after El Nino as drought reduces quality of next harvest up to 30%. This applies to all edible oils crops including palm oil, soybean, sunflower, and rapeseed, and cause a globally tight supply situation in edible oils.
Key takeaways from the report:
· El Nino is looming.
· Soybean planting in US still behind schedule. 66% completed as of 1Jun09 vs. five years average of 79%.
· Plantation will benefit from US$ debasement and rising oil price (the return of oil trade to the upside?) .
· Valuations remain attractive compared to respective market. Mid cap plantation at 8-10x PE 10CL, large cap at 12-15x PE.
· Stay overweight on plantations. Top pick KL Kepong, IOI Corp, Lonsum, Sampoerna Agro, Bakrie Sumatra Plantation.
related link : http://www.bom.gov.au/climate/enso/ http://iri.columbia.edu/climate/ENSO/currentinfo/QuickLook.html
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