CPO catalysts anticipated from Indonesia, Malaysia B10 programme — Analyst

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KUCHING: With subdued palm oil prices and dampened investor interest at present, analysts anticipate sector catalysts to come in the form of Indonesia and Malaysia’s B10 biodiesel programme.

RHB Research Institute Sdn Bhd (RHB Research) believes that palm oil prices remain subdued for the moment as the prices have been in a multi-year downcycle.

“Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed out,” it anticipated in sector reports yesterday.

Pending the implementation of Indonesia’s B10 biodiesel programme, RHB Research said palm oil prices have languished so far this year.

The average year-to-date price of crude palm oil per tonne is only at RM2,260 versus the firm’s average assumption of RM2,500, it said.

“We reduced our 2015 price assumption to RM2,350, which still implies stronger prices going forward. Biodiesel mandates by the governments of Malaysia and Indonesia could still give palm oil prices a jump-start as the quantum of demand would significant. We see the average price to strengthen to RM2,500 per tonne next year.

“While biodiesel may jumpstart palm oil prices, a sustained upcycle in prices may stem from a structural slowdown in production growth.

“Judging from the slowdown in new planting in Indonesia, this could happen by 2017 at the latest.”

Looking at Sarawakian players, RHB Research rolled forward valuations to 2016 from 2015 as it believed investors should start positioning for the future.

“We have revised our valuation methodology for Ta Ann Holdings Bhd, with our sum-of-parts (SOP) calculation now comprising discounted cash flow (DCF) for the log division, replacement method for the plywood unit, and a target price-earnings (PE) ratio of 16 times of 2016 for the plantation division.

“Our target price rises to RM4.70 from RM4.42, maintain buy,” it added.

For WTK Holdings Bhd, the research house also revised its valuation methodology and now use a SOP approach comprising DCF for the log division, replacement method for the plywood unit, and a target PE of 16 times in 2016 for the plantation division.

“We lift our target price to RM1.15 from RM1.10, but keep our neutral recommendation.

“For Jaya Tiasa Holdings Bhd, our SOP TP rises to RM1.50 from RM1.45. As we believe the downside risk is limited from hereon, we upgrade our recommendation to neutral from sell.”