CIMB Plantations Sector Note - Don't go ape over NGO antics

Our analysis of the anti-palm oil campaign revealed the following (1) CPO still has pricing power, (2) planters are facing a more challenging environment in their search for growth, (3) certification may lead to higher operating costs but the impact is not significant, (4) the campaign may affect planters' corporate image and drag down their valuations and (5) potential beneficiaries of this are small- to mid-cap planters. Big-cap planters with exposure to EU markets may lose out. There is no change to our CPO price forecasts following this review. The recent CPO price rally on weather concerns may lead to short-term gains for pure CPO plays but this may not last if global weather conditions improve. As such, we are keeping our recommendations for all the planters. We remain NEUTRAL on the sector as it is trading around its mid-cycle P/E. Golden Agri, Sampoerna Agro and BW Plantations remain our top picks for their more attractive valuations relative to peers.