Mandiri Sekuritas Plantation: Supportive substitutes

CPO export sales started to rebound in the 2Q09, supported by worsening outlook of soybean output in America. The US Agricultural Department estimated that the El Nino, if not severe, will slightly benefit palm oil sector as palm is more resistant than soybean raising possibility of CPO price increase (due to soybean scarcity) which could more than offset FFB yield contraction. However, furthe r price increase is limited due to better harvest in the 2H09 (putting aside possible El Nino) and concerns on India’s new CPO tax policy. We upgraded our TP, factoring lower risk-free rate and higher CPO price assumptions. Our top pick is SGRO because of attractive intrinsic and relative valuation. In term of ytd return, SGRO is also lagging far behind its peers (50.4% vs 138.1%).

Stable CPO price outlook. CPO price has risen by 40.7% ytd, which triggered us to adjust our valuation because we believe that the supply-demand conditions are in favor of stable CPO prices, one of them is the existence of circular problem between drought and lack of financing in soybean sector. Lingering drought in America reduced cash flow generation amidst limited lending activities in global financial market. The lack of financing has forced soybean planters! , especially the small ones, to reduce fertilizer application, which may result in low yield in the next harvest. Therefore, as the USDA estimated, soybean output will remain under pressure so that substitution process to the CPO will continue. Beside that, El Nino is expected to curb harvest this year, especially for soybean which is more susceptible to such weather anomaly than palm oil. We believe the CPO outlook is stable, if not positive, because there will be more CPO harvest in the 2H09, and rising concerns that if the new elected India government re-enacts CPO import tax on request from domestic planters.

SGRO is our top pick. Our preference for SGRO among the plantation stocks is largely due to undemanding valuation both on intrinsic and relative valuation. In term of relative valuation, SGRO has the most attractive PER09F-10F, and relatively cheap EV/ha. SGRO is also lagging behind other plantation stocks with only 50.4%ytd return (vs industry average of 138.1%). In term of harvesting costs, SGRO is most elastic in facing downturn business cycle. Note that, even though we like the fundamental of AALI an! d LSIP du e to their economies of scale, we believe both stocks are already pricey with relatively high PER09F-10F and EV/ha.

Upgrade our TP. We upgraded all TPs for plantation stocks under our coverage due to (1) lower risk-free rate assumption of 9.5% (from 11.2%), reflecting positive outlook on general economy, and (2) higher CPO price assumption of US$650-700/ton for FY09F-10F, and US$750/ton for long term assumption. Risks to our forecasts: 1) demand slowdown due to poor economic climate, 2) potential threat of import tax on palm oil by India’s new government, 3) severe El Nino that could hamper harvest, 4) stocks liquidity, which is lower than peer average.

CIMB Ramayana Lestari Company update - Turning the corner

(RALS IJ / RALS.JK, OUTPERFORM - Maintained, Rp570 - Tgt. Rp800, Consumer)

Ramayana's May sales hit Rp401bn, with 5M09 SSG at -5.8% yoy, much improved from the -8% yoy in 4M09, supporting our view that the worst could be over. A recovery is in sight, with sharply declining inflation and improving SSG. Ramayana has decided to revamp its supermarket model, and opened a pilot store recently. We believe downside risk is limited, with upside aplenty. We raise our earnings estimates by 4-9% to factor in lower tax assumptions and lift our DCF-based target price to Rp800 from Rp560, implying 15.1x and 10.8x CY09-10 earnings. Maintain OUTPERFORM.

Mandiri Sekuritas Economy: IDR: Further appreciation warranted

The rupiah is one of the best performing currencies in the region year to date, having strengthened by 8.2% to Rp10.053/US$. Indonesia’s respectable economic prospect despite the current global downturn, coupled with the broad US$ weakness, have driven capital inflows into rupiah assets.

We still expect the rupiah to strengthen as foreign money may continue to flow into Indonesia’s capital markets. Last Thursday, Moody’s upgraded Indonesia rating (Ba3) outlook to positive, citing strong economic growth outlook. Improvement in commodity prices and global economic recovery would, as well, help support balance of payment.

However, we do not expect significant appreciation in the rupiah since demand for foreign currencies may pick up in the second half due to increase in demand for imports, trigger by lower lending rates and more aggressive bank’s credit disbursement. Hence, we expect the local currency to strengthen by another 2.8% to Rp9,772/US$ by the end of the year.

[BRIGHT INFO] "Just a Note - LOOKING FORWARD"

Good day to you.

The Dow moved into positive territory for the year for the first time since early January on Friday. For the week, the Dow gained 0.4 %, the S&P 500 added 0.7% and the Nasdaq rose 0.5%.

Southeast Asian stock markets ended mixed on Friday, Singapore down for a second day, while bourses in Malaysia, Indonesia and Thailand inched higher. Gains in Chinese industrial output and rising U.S. retail sales lifted Asian shares toward new highs for the year.

Crude oil fell for the first time in four days as a record plunge in European industrial production. Crude oil for July delivery fell 64 cents, or 0.9%, to settle at $72.04 a barrel. Coal on Newcastle Port closed at $76.75 up 3.28% from last week.

The metal used in power and construction has gained more than 70 % this year and about 10 % since the start of June on stronger economic data and expectations of higher demand in the future. Investors are becoming more positive on the macro economic outlook. The global recovery seems on track and metals should pick up through the second half of 2009 and (into) 2010. The automaker aims to increase manufacturing capacity to 1.1 million nickel-metal hydride cells in 2010. LME Nickel 15500 down 1.90% but YTD + 32.48%. LME Tin 15600 down 0.95% but YTD + 45.79%.

CPO Output in Malaysia surged 8.5 % to 1.4 million metric tons in May, lifting stockpiles for the first time in six months by 5.7 % to 1.37 million tons compared with April.

We believe our market still on consolidation mode this week. Some Local Fund still reduces their position for cash management. But with better economic outlook we are still maintain Positive Outlook for our market.

With dividend about idr296.94 I think TLKM will be a trigger for index mover today. Valuation TLKM is cheap, good capex and expansive business. We put price objective TLKM at 8400 16.8xP/E’09 compare to ISAT 20xP/E’09.

As we believe that crude oil will trade above $75, coal price at $75 and Nickel will trade at above $16.000 mining and energy is still my favorite sector.

We continue to buy on weakness on ANTM, INCO, TINS, BUMI, PTBA, ADRO, BNBR, INDF and SGRO.

“LOOKING FORWARD”

[Personal Opinion ]
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DISCLAIMER: This report is issued by [BRIGHT INFO]. Although the contents of this document may represent the opinion of [BRIGHT INFO]. We cannot guarantee its accuracy and completeness.

Palmoil HQ Crude palm oil futures: RM2,430 support level faces test

OBSERVATIONS: Taken aback by the thick slew of bearish news on the fundamentals for the commodity, Kuala Lumpur CPO futures market players liquidated their long positions in numbers last week, causing prices to dive.

The actively-traded August 2009 contract dropped to as low as RM2,445 a tonne, just a whisker above the RM2,430 immediate support level, before recovering some on short-covering ahead of the weekend. It settled last Friday at RM2,465 a tonne, down RM55, or 2.18 per cent, over the week.

Market players as a whole had been told - no, mentally conditioned - by so-called experts to expect a drop in end-May stocks to 1.2 million tonnes, from 1.29 tonnes, and also to expect a strong pick-up in exports due to strong Chinese demand.

So it came as a huge shock to be informed by the Malaysian Palm Oil Board, in its monthly report released last Monday, that end-May stocks had burgeoned to some 1.37 million tonnes, attributable in large part to a jump in May production to 1.40 million tonnes from 1.29 million tonnes in April.

What’s more, the latest June-10 export estimates were downright disheartening. The total combined estimates of Societe Generale de Surveillance and Intertek Agri Services averaged some 285,000 tonnes, down a whopping 152,000 tonnes or 35.12 per cent compared with the average of their estimates for the corresponding period in May.

As a reflection of the bearish mood, trading action last Friday resulted in an engulfing bear symbol - a major bearish candlestick pattern that in all probability presages more price weakness ahead.

Conclusion: This market is likely to fall to test the RM2,430 immediate support level in early trade this week. A decisive breakdown below that support level would signify that this market has morphed into a short-term bear.