A Cup of Tea 11 Aug'10

We think that since 26 July ‘10 we already discussed the potential increase in CPO prices. Our reason for that moment is the potential decrease in production yield due to La Nina, biological yield stress caused by dry weather earlier this year hurt production and demand for Ramadan and Idul Fitri Festival.

Yesterday CPO price hit record high for 15 month at 2730 RM. Demand surge sharply from both local and foreign. Demand on physical market from Pakistan and India inspiring buyer. CPO prices have rise up to 16.5% from the lowest point in June '10.

This will continue?
I don’t think so, now with recent moderate rain in several oil-palm growing regions likely to boost yields in the future. Demand on physical market both from local and foreign will slide before Idul Fitri Festival.

From latest data showed that CPO export for Malaysia down on MoM basis. Surveyor SGS (Malaysia) Bhd. estimated Aug. 1-10 exports at 395,186 tons, down 14% on month, while Intertek Agri Services put the figure at 392,185 tons, down 17% on month. The government-linked Malaysian Palm Oil Board said end-July palm inventory fell 3% to 1.41 million tons vs market expected fell down 4.2%, output rose 7% on month to 1.52 million tons vs market expected rose 2.1%. July exports rose 1.8% from the previous month to 1.47 million tons vs market expected 5.5%.

Prices may fall further amid rising production in August. Palm oil may tumble by as much as 8 percent this month as the commodity is “extremely overbought”. I think the CPO Futures may decline to a range of 2430-2570 RM level after Idul Fitri Festival.

Are we still bullish on CPO Shares?
Yes, absolutely. On the long run we still believe demand will pick up again. World economic getting better, this can cause an increased purchasing power. Palm oil may climb to 3,000 RM by end of October. China may step up purchases of palm oil ahead of the Mid-Autumn Festival in mid-September. But for the short term view we think we will reduce CPO shares for a while and enter again after the correction.

INCO
INCO results were above consensus expectation on higher nickel-in-matte deliveries and expanded margin. Higher net profit was mainly attributing able to: higher revenue (+42.3% qoq) and margin improvement. Net profit yoy increased tremendously to US$218.8m (+533% yoy) in 1H10from only US$34.6m in 1H09. Quarterly revenue jumped on the back of: strong average selling price (up 28% qoq) and higher nickel-in-matte deliveries up 11%qoq. Margin expanded on lower fuel consumption. The completion of a third hydroelectric power generating plant at Karebbe by 2H11 is expected to reduce the company’s energy cost.

Nickel is a critical ingredient in the production of stainless steel and industrial alloys - the demand for nickel rises directly in step with the growth of emerging economies. The latest International Stainless Steel Forum (ISSF) production data suggests that the nickel market will remain in deficit for 2010 and 2011. The nickel production and sales of China nickel industry keeps growing, with the supply falling short of market demand.

I will continue to Buy on Lower recommendation on INCO for better return.

Our Market
I think JSX will trade slightly lower due the negative sentiment from region but consolidation mode still intact. Fundamentally, the stock market looks strong. But we will see profit-taking here and there. JSX between 3003-3067 level.

TOP PICK: ASII, TLKM, INCO, TINS, BBRI, LSIP and BJBR

MPPA Interesting

Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.