● Short term – weather vagaries will likely dominate. La Nina might have already begun in June 2010. Investors looking to ride on weather-related rallies must be very nimble, as these rallies could quickly disappear, if the weather improves. Poor palm oil production, coupled with a weak USD, has supported palm oil prices. Palm oil prices are expected to seasonally rise at year end. We raise our 2010 palm oil price estimates to RM2,600/t.
● Contrarian call – bearish on palm oil prices in 2011. We are bearish on the palm oil price outlook for 2011, as we expect palm oil output to surprise on the upside with the reversal of tree stress and good rainfall, which will likely boost output and new acreage maturing. We cut our 2011 palm oil price forecast to RM2,300/t.
● We downgrade the plantation sector from Market Weight to UNDERWEIGHT on a 12-month basis, as we downgrade IFAR, SGRO and LSIP from Outperform to NEUTRAL, and GENP from Neutral to UNDERPERFORM. We are now 3-36% below consensus. We maintain our OUTPERFORM rating on Wilmar, as it is a proxy to China’s strong domestic consumption.
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