● While Indonesian CPO stocks have delivered positive absolute performance, they have exhibited negative relative performance in the past one-three months.
● We are seeing rapid recovery in CPO production. While 2010 production is unlikely to show strong growth due to low base effect in early 2010, we believe the recovery trend may continue, resulting in strong 2011 CPO output. In turn, we foresee risk of
softer CPO price in 2011.
● We are starting to see CPO prices flatten in the past two months, potentially reflecting anticipation of stronger output in 2011, combined with relatively soft demand due to global economic conditions. We continue to foresee risk of soft 2011 CPO price.
● Most Indonesian CPO producers are trading in line or above their Malaysian counterparts, implying limited rerating potential. SGRO is currently trading at a discount to its peers, but this largely reflects its highly volatile production profile and smaller plantation size.
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