看报告只须看"经济和实况" ，"预测和推荐"只能信一半。
如果分析机构已经闯出名堂了，他们会预留空间，以让日后有东西写。激进的分析机构(常是默默无闻的)，会比较斩钉截铁，这种报告比较能告诉你一些事实，但也不会傻到告诉你全部，例:闹了4个月的阿根廷政局。
根据综合报导，cpo的下调会落在RM2500。
Sector update
UNDERWEIGHT (Downgraded)
25 July 2008
ambg.com.my
Investment Highlights
We are downgrading the plantation sector from OVERWEIGHT to UNDERWEIGHT after a few company visits. Notwithstanding the recent sell-offs, we believe that there is still a further downside to share prices. In our opinion, the first leg of de-rating was largely sentiment-driven, triggered by the correction in oil price.
More disconcertingly, we caution that the second-leg of de-rating will likely be more fundamentally-driven: a growing mismatch of CPO (crude palm oil) supply and demand as production may surge moving into 2009. Early signs of a supply imbalance are already reflected in the inventory levels, which rose to a seven-year high of 2 million tonnes as at June 2008.
Our company visits revealed that consensus is mixed, with bullish undertones now being replaced with creeping concerns over fast-rising supply. CPO production in Indonesia is expected to increase by a significant 13% from 18.8 million tonnes in 2008 to 21.3 million tonnes in 2009. This represents the fastest expansion in CPO production in the past two years (average 8% p.a.), with exponential growth coming from a step-up in mature areas (from the massive replanting programs in 2004-2005) and enhancements in FFB (fresh fruit bunches) yields.
Similarly, in Malaysia, CPO production is expected to rise by 11% from 16 million tonnes in 2008 to 18 million tonnes in 2009. This compares to an average annual increase of only 4% in the past four years. To be sure, the highest export growth for Malaysia in the past four years was only 7% p.a. in 2005 and 2006.
Even in the face of slowing demand from China, India and Europe, we do not think that demand growth (average growth rate of 3% in the past four years) will expand fast enough to absorb the steep increase in supply. Furthermore, actual demand may even fall short of expectations given rising regulatory risks on biofuel in the mature economies. CPO demand may be hit at some point in the face of elevated inflationary pressures in Asia. Our discussion with a dominant industry player indicated that China is buying “just enough” palm oil instead of the previous practice of stocking up inventory.
Biofuel policies in USA and Europe are not as positive as before. In the United States, an increasing number of states are seeking waiver from the energy law, which mandates 15 billion gallons of ethanol in fuel supply annually by 2015. The Environmental Protection Agency (EPA) is now considering a request from the state of Texas and would make a decision by August. We reckon that if the EPA approves Texas request of a waiver, then other states in USA would follow suit.
In Europe, two major developments are taking place in the biofuel industry. First, a keymaker has proposed to reduce the 2020 biofuel target from 10% to 4%. This has an impact on vegetable oil prices as approximately 67% of biodiesel produced in United States are exported to Europe while 30% of corn and 13% of soybean are used as biofuel feedstock in the country.
Second, the European Commission is investigating if the United States has been unfairly exporting subsidised biodiesel to Europe at the expense of the European biodiesel producers. The commission will complete its investigation by June 2009. In the meantime, the commission is allowed to impose measures against biodiesel from USA although there has been none yet. But if it decides to impose duties on exports of US biodiesel to Europe, there would be negative effects on the US biodiesel industry and vegetable oil prices.
Taken together, we expect inventory levels to remain at a high level of 2.2 million tonnes next year and continued deterioration in the stock usage ratio (inventory levels expressed as at multiple of exports) as supply overwhelms demand. This means that the CPO pricing cycle is coming to an end. We have cut our CPO price assumptions from RM3,500/tonne to RM3,000/tonne in 2009 and RM2,800/tonne in 2010. Against this backdrop, we have slashed our FY09F earnings estimates by 13%-42%. Based on our revised earnings estimates, we expect earnings of the plantation companies to peak in 2008 and decline by 15% in 2009 and 2% in 2010. We have also trimmed our dividend assumptions.
We are downgrading IOI Corporation and Sime Darby to HOLD. We recommend to SELL the rest of the stocks under our coverage. In spite of Wilmar’s integrated agribusiness, we have a SELL recommendation as a slowdown in China is expected to affect not only the group’s plantation division but also the sales volume and margins of its merchandising and processing division.
DOWNGRADE SECTOR TO UNDERWEIGHT
The current CPO (crude palm oil) price cycle started in 2H2005. Since then, the KL Plantation Index surged 210% to a high of 8,823 points in January this year compared to KLCI’s (Kuala Lumpur Composite Index) rise of 66%. Plantation stocks like IOI Corporation (IOI) and KL Kepong (KLK) more than doubled during that period.
Barring unforeseen weather circumstances we believe that the good run for CPO price and plantation stocks has ended. Due to the reasons listed below, we are downgrading
the plantation sector from OVERWEIGHT to UNDERWEIGHT. The reasons for our sector downgrade are:-
1. Slowing demand from China coupled with higher-than-expected palm oil output from Indonesia;
2. European Union’s (EU) proposed reduction in the use of biofuel in transportation fuels from 10% to 4% by 2020;
3. Inflation to reduce demand from downstream products;
4. Impact from the Midwest floods in US on soybean would not be as negative-as-expected;
5. More states in USA are softening their stance on biofuel targets as it has been blamed as the cause of high food prices;
6. EU’s backlash against US biodiesel; and
7. Macro factors - A hike in interest rate in USA would soften the demand for commodities such as crude oil. The hike will also cause a stronger US dollar, which
would result in the switching of assets from crude oil to US dollar.
Lower crude oil price would exert downward pressure on CPO price. As these macro factors are more economics-based instead of equity, we would not be elaborating them in this report.
2009F CPO PRICE ASSUMPTION REVISED TO RM3,000/TONNE FROM RM3,500/TONNE
We are revising our average CPO price assumption for 2009F from RM3,500/tonne to RM3,000/tonne. For 2010F, we are assuming an average CPO price of RM2,800/tonne versus RM3,500/tonne previously.
Our 14% downward revision in CPO price assumption for 2009F has resulted in the earnings of the plantation companies under our coverage being lowered by 13%-42%. Our earnings revisions account for both the lower CPO price and operating margin.
Among the companies our coverage, the most sensitive to changes in CPO price are the pure plantation companies such as Sarawak Oil Palms and Tradewinds Plantation. For every RM100/tonne change in the price of CPO, FY09F net profits of these companies declines about 4%- 6% (See Table 2).
Integrated companies such as IOI and Wilmar are less vulnerable to the volatilities of the CPO price cycle. We estimate that for every RM100/tonne downward revision in
CPO price, the net profits of these companies would decrease by 2%-3%.
HOW LOW CAN SHARE PRICES GO?
It is difficult to gauge how low share prices can go. Since reaching their highs early this year, share prices of plantation companies under our coverage have fallen 10%-41%. Based on historical price cycles, there is a possibility that share prices of plantation companies can weaken further (See Table 3).
During the 1994/95 CPO price downturn, share prices of the plantation companies in our stock universe declined as much as 52% (See Table 3). In 1999/2000, the fall in share prices ranged between 33% to 72%.
The magnitude of the fall in share prices in 2004 was smaller compared to other cycles and the trough period was shorter than the rest. Share prices of the plantation companies under our coverage shrank by only 19% to 31% during the 2004 trough period (See Table 3). By the end of the year, they had already recovered from their lows.
Stock recommendations
We are now assuming a lower PE of 12x-13x on CY09F earnings to arrive at the target prices of the big-cap plantation companies such as IOI, KLK and Wilmar. For the smaller companies, we have assumed a PE of 6x-8x. (See Charts 5-8 for PE bands of IOI, KLK, Kulim and Sarawak Oil Palms).
We are downgrading our recommendation on all the stocks under our coverage from BUY to SELL except for Sime Darby and IOI.
Although we have a SELL recommendation on TH Plantations, investors looking for dividend yield can consider the stock. TH Plantations’ attractive dividend yield of 6%-7% is underpinned by its official policy of a 50% payout from annual profit.
In spite of Wilmar’s integrated agribusiness, we recommend to SELL the stock as it is the most exposed to a slowdown in the Chinese economy.
WHY DOWNGRADE?
HIGHER-THAN-EXPECTED PALM OIL SUPPLY FROM INDONESIA IN 2009F
Output growth of 13% in 2009F
We believe that Indonesia will record a bumper harvest next year on the back of higher mature areas and more trees entering the productive age of seven to 15 years.
Output growth is expected to come from state-owned companies and smallholders. Also, the major listed plantation companies in both Malaysia and Indonesia are seen to account for nearly 30% of the country’s output (see Table 6).
Oil World, a monthly publication, has projected Indonesia’s CPO production to expand 13.3% to 21.3 million tonnes in 2009F from an estimated 18.8 million tonnes in 2008F (See Chart 2).
Based on our estimates, about one-half of the production growth forecast by Oil World would come from the regional plantation companies. The CPO output of the major listed plantation companies are expected to increase 6% to 5.8 million tonnes next year underpinned by a 3% increase in mature areas and a 4% improvement in FFB (fresh fruit bunch) yields.
Enhancements in FFB yield are envisaged to be partly driven by the favourable age profile of trees. For instance, approximately 84% of Golden Agri-Resources’ mature trees were in the prime years of seven to 18 as at end-2007 while 60% of Astra Agro Lestari’s mature trees were between 10 to 14 years as at January 2008.
Among the regional plantation companies, Bakrie Sumatra is expected to record the highest increase in CPO production in 2009F on the back of a 5% growth in mature areas and 11% improvement in FFB yield (see Tables 5 and 6). Following Bakrie Sumatra is Sampoerna Agro with a 14% climb in CPO output in 2009F (See Tables 5 and 6).
Long-term output growth could even be higher due to aggressive planting plans by companies
In five to ten years’ time, we believe that there is strong likelihood that palm oil production in Indonesia would grow at a double-digit rate per annum. This is due to aggressive planting plans not only by Indonesia-based companies but also by Malaysia and Singapore-based ones like Wilmar International and KLK.
At the minimum, these plantation companies are expected to cultivate 10,000ha of oil palm areas annually each (See Table 7). The most aggressive is Wilmar, which intends to plant up to 40,000ha of oil palm p.a. (See Table 7).
Based on the companies under our coverage, at least 100,000ha of landbank would be cultivated by the major companies in Indonesia every year. This is bigger than Kulim Bhd, which has approximately 82,906ha of plantation landbank but close to the size of Tradewinds Plantation Bhd, which has 129,332ha of landbank.
Assuming a conservative FFB yield of 18 tonnes/ha and oil extraction rate (OER) of 19%, then the potential CPO output from these new areas would be 342,000 tonnes/ year. This is 2% of Indonesia’s 2007 and Malaysia’s 2008F output, each.
As for Malaysia, barring unforeseen weather circumstances, industry expert, Mr MR Chandran has forecast the country’s output to expand 11% to 18 million tonnes in 2009F from 16.2 million tonnes estimated by MPOB (Malaysian Palm Oil Board) for 2008F.
Output growth is expected to come from new planting areas in Sarawak and enhancements in FFB yields in Sabah and Sarawak.
Sabah recorded a FFB yield of 23 tonnes/ha and OER of 21.3% in 2007 while Sarawak’s FFB yield and OER were 15.7 tonnes/ha and 21.0% respectively. There were approximately 1.1 million hectares of mature areas in Sabah and 500,000 hectares in Sarawak in 2006.
DEMAND FROM MAJOR IMPORTERS NOT CATCHING UP WITH SUPPLY
Although palm oil exports have been expanding YoY in the past six months, we believe that going forward, demand growth may not be able to catch up with supply. We reckon that palm oil demand from China and Europe will slow down. If the US biodiesel industry is affected by the developments in Europe, then demand for palm oil from the United States would also be affected.
We are of the view that Malaysian palm oil exports to China may reach its peak this year before tapering off next year. This is due to a few reasons.
First, high food prices are prompting consumers and manufacturers to cut down on spending. Instead of stocking up, they are now buying only according to their needs.
According to an industry player with sizeable operations in China, demand for palm oil in China has been growing at a slower rate in the past few months due to high prices. Instead of buying vegetable oil in large volumes, importers or manufacturers are now purchasing “just enough” for customers.
a:就是因为他们知道物价会在下个月下跌，所以才削减购买。
Second, we believe that palm oil exports to China in the past six months were partly driven by preparations for the 2008 Beijing Olympics Games. It is likely that demand would start to soften after the Olympics end in September 2008.
a:奥运年刺激需求上涨？
Finally, a significant 30% of palm oil are used in the industrial segment of oleochemical in China (See Chart 1). Therefore, if demand from this segment weakens due to uncertainties in the global economy, then there would be a fall in palm oil exports to China.
In 2007, Malaysian palm oil exports to China amounted to 3.8 million tonnes. Hence, a 10% reduction in demand would translate into 400,000 tonnes. In comparison, the country’s 2009F palm oil output is forecast to grow 11% to 18 million tonnes from 16.2 million tonnes in 2008F.
Palm oil exports to China rose 10% YoY to 1.8 million tonnes in 1H2008. We think that palm oil export growth to China would be between 7% to 10% this year and 5% to 7% for 2009F (2007: 7%).
Malaysia’s palm oil exports to China have climbed steadily since 1999 (See Chart 3). The highest growth of 21% was achieved in 2006 when China abolished the palm oil import quota under the World Trade Organisation guidelines. China took over from India as the largest importer of Malaysian palm oil in 2002.
As for Europe, we expect palm oil exports to continue to soften on two counts. First, the tax imposed on B100 biodiesel in Germany will continue to affect consumer
demand for biodiesel.
Second, a proposed reduction in European Union’s (EU) biofuel target from 10% to 4% by 2010F would affect demand and prices of vegetable oil. We will elaborate in the next section.
Last year, Malaysian palm oil exports to EU declined 20% to 2 million tonnes. In 1H2008, EU’s imports of palm oil from Malaysia fell 19% YoY to 900,000 tonnes.
PROPOSED REDUCTION IN EU’S 2020 BIOFUEL TARGET FROM 10% TO 4%
A recent World Bank report blamed the rise in global food prices to biofuel. It was estimated that 75% of the increase in global food prices was due to biofuel.
Following that report, in early July key officials of the EU began to distance themselves from the organisation’s target of using biofuel in 10% of transportation fuels by 2020.
Reuters quoted an EU lawmaker as saying that he has broad parliamentary backing to propose changing EU’s biofuel target to only 4% from 10%.
According to an EU statement, there is no official policy change and the Commission is still sticking to its original target of 10%. The Commission also said in early July that the 10% target does not include only biofuels but also renewable sources such as hydrogen or electricity power.
Although the 4% or 10% biofuel target is only a long-term target, we believe that it would have an impact on vegetable oil prices as blenders in EU would no longer be driven to produce as much biofuel as before.
source:USDA
Lower biodiesel demand from Europe will affect the biodiesel industry in the United States. According to various news reports, approximately 300 million gallons or 67% of 450 million gallons of biodiesel produced in USA were exported to EU last year. USA’s biodiesel exports represented 15% to 20% of the EU biodiesel market.
Additionally, as about 13% of soybean and 30% of corn in USA are expected to be used as feedstock to produce biofuel in 2008/09, a collapse in the US biodiesel industry would exert downward pressure on vegetable oil prices.
Direct impact on CPO price would also come in the form of lower imports of palm oil by EU. About half of EU’s biodiesel are produced using rapeseed oil. If biodiesel production were to decrease, then there would not be any shortage of rapeseed for the food segment. This would reduce palm oil imports by the EU.
Netherlands, which is the vegetable oil processing centre of Europe, has been importing less palm oil since last year. In 2007, palm oil exports to Netherlands fell 13% YoY to 1.5 million tonnes and 31% YoY to 500,000 tonnes in 1H2008 (See Chart 2).
INFLATION TO REDUCE DEMAND FROM THE DOWNSTREAM SEGMENT
Based on Indofood Agri-Resources’ 1QFY08 results, demand for downstream products such as cooking oil has been healthy in spite of higher selling prices. Going forward, we expect demand from this segment to remain positive as people still need to eat.
However, there could be weaker demand from the industrial segment of the downstream chain e.g. oleochemicals. Apart from food and beverage, fatty acids are used in many other industries such as electronic, paints and coating and plastics. Due to the current economic downturn, demand from these industries could falter.
Another reason for slower demand is the high prices of end-products. Oleochemical companies have been passing on rising feedstock costs in the form of higher selling prices.
Feedstock costs such as palm kernel oil or refined palm stearin have been climbing due to an increase in regional oleochemical production capacity and CPO price. Prices of palm kernel oil and refined palm stearin have risen by 50% and 29% respectively in the past 12 months.
According to an industry player early this year, global supply and demand for fatty acids are approximately 9.5 million tonnes/year and 6 million tonnes/year respectively. Out of the 9.5 million tonnes/year of world supply, about 6 million tonnes/year are from Asia. In China, nearly 30% of palm oil imported by the country are used in the oleochemical segment.
In Malaysia, according to MPOB total oleochemical production amounted to 2.6 million tonnes in 2007.
To produce 0.92 tonnes of fatty acids, approximately one tonne of palm kernel oil is needed.Hence, based only on Malaysia’s 2007 oleochemical production and disregarding demand from other countries, if there is a 10% decline in demand from the fatty acids segment, this would reduce CPO demand by 300,000 tonnes. This is about 2% of Malaysia’s 2008F estimated production of 16.2 million tonnes.
a:cpo也能取出fatty acid
IMPACT FROM MIDWEST FLOODS NOT AS SEVERE-AS-EXPECTED
Recent reports indicate that in spite of receding waters in the Midwest and minimal possibility of farmers replanting soybean, soybean output in the United States are still projected to increase in 2008/09F.
In its July report, USDA (United States Department of Agriculture) revised its soybean projections downwards to account for effects of the Midwest floods. The USDA trimmed its estimates for soybean harvested areas from 73.8 million acres to 72.1 million acres (See Table 8).
Forecast of soybean yield was also revised downwards, resulting in 2008/09F soybean production being lowered by 3.3% or 105 million bushels, to 3,000 million bushels. The projection of soybean ending stocks was revised downwards by 20% from 175 million bushels to 140 million bushels for 2008/09F.
Despite this, soybean output and ending stocks are still anticipated to rise in 2008/09F. The USDA forecasts soybean production to expand 16% to 3,000 million bushels in 2008/09F, 3% lower than its estimate of 3,105 million bushels reported in June. Ending stocks are expected to climb 12% to 140 million bushels in 2008/09F versus June’s forecast of 175 million bushels.
Globally, soybean production is envisaged to rise 9% to 237.8 million tonnes in 2008/09F while ending stocks are expected to remain flat at 48.9 million tonnes due to smaller beginning stocks in the year. Interestingly, usage or demand for soybean is projected to inch up only 2% in 2008/09F.
US LAWMAKERS SOFTENING BIOFUEL STANCE
Currently, the US energy law (signed in 2007) mandates 15 billion gallons of ethanol in fuel supply annually by 2015 and that 36 billion gallons a year of renewable energy be blended into gasoline by 2022.
However, an increasing number of US senators and governors have been calling for a softer stance in the country’s biofuel policy due to rising food prices.
The first was Texas, which requested for an exemption from the US energy law in April this year. Texas Governor Rick Perry is seeking a year-long waiver of 50% of the mandate. Connecticut Governor Jodi Rell in early May asked that the energy requirements be put on hold.
A US Senator in Texas said that she would soon be proposing a bill to freeze the new national biofuel mandate. In Missouri, some lawmakers were unsuccessfully pushing for a cancellation of the state’s ethanol mandate in April. Missouri law mandates all gasoline contain 10% ethanol.
Going forward, the risk is that the current energy law would be frozen or more states in the US would ask for a waiver against the energy law. This will result in falling demand for soybean and corn.
Presently, the waiver request by the Texas Governor is being considered by USA’s Environmental Protection Agency (EPA). A decision will be made by August this year. According to a CBOT (Chicago Board of Trade) report in May, the EPA has the power to modify the renewable fuels requirement under a 2005 law that mandates the production of 7.5 billion gallons of biofuel a year by 2012 versus the current mandate of 9 billion gallons of biofuel for 2008 alone.
We believe that if the EPA approves the request of the Texas state to reduce its biofuel target, then other states would follow suit. This would reduce demand for corn and soybean oil.
According to the latest USDA projections, nearly 30% of corn supply will be used as feedstock to make ethanol in 2008/09. In 2007/08, the percentage of corn used in the ethanol industry was about 20%.
As for soybean oil, approximately 13% of the vegetable oil supplies would be used by the biodiesel industry in 2008/ 09F compared to 11% in 2007/08.
US LAWMAKERS TIGHTENING STANCE ON CRUDE OIL SPECULATION
Recently, the US Senate voted to consider a bill that would curb speculation in the oil markets. This bill would require the Commodity Futures Trading Commission (CFTC) to set limits on trading in oil markets by investors and speculators and close a loophole that allows speculators trading on the London oil market to escape scrutiny by US regulators.
Although according to news reports, it would be difficult to secure bipartisan approval to pass the bill, we believe that the development is an indication of increased scrutiny on the energy markets.
So far, there has been no mention on limits on agricultural commodity futures yet. Recall that in June this year, the CFTC had already announced disclosure-based initiatives to address concerns in the commodity futures market. Some of the initiatives included proposals to routinely require more detailed information from index traders and revisions to improve effectiveness of of agricultural trade options.
EU’S BACKLASH AGAINST US BIODIESEL
In April 2008, the European Biodiesel Board (EBB) launched a legal complaint to the European Commission against unfair subsidised biodiesel exports from the United States.
According to EBB, EU biofuel producers have been languishing due to the cheaper biofuel exports from USA. The EBB urged the European Commission to initiate an anti-dumping and anti-subsidy investigation with a view to impose counter measures against US biodiesel.
Currently, the European Commission is still conducting investigations as to whether there has been unfair trade practices. The investigation is only scheduled to be completed in June 2009. However, the Commission may impose provisional measures within a nine months period from the date of the complaint i.e. June 2008.
It would be detrimental to the US biodiesel industry if the EU were to ban or impose measures restricting US biodiesel. This is because more than one-half of the biodiesel produced in USA are exported to EU. In addition, a significant proportion of corn and soybean are used as feedstock to manufacture biofuel.
A silver lining is that US has reduced its subsidy for ethanol from 51 US cents/gallon or US$155/tonne to 46 US cents/gallon or US$140/tonne. Hence, this should help make EU biodiesel slightly more competitive against US biofuel and alleviate some of the complaints.
The flipside is that the reduction in subsidy is only for ethanol and not biodiesel i.e. biofuel made from soybean. Most of the biofuel exported from the United States to the EU are biodiesel.
CONCLUSION
In summary, there has been increasing backlash against biodiesel as it is said to be the main cause of food inflation. One of the drivers of CPO price was supportive EU and US biofuel policies. Therefore, if these policies were reversed, there would be a downward pressure on CPO prices.
While there is more downside risk for CPO prices, the upside is increasingly limited, barring unpredictable weather. Hence, we are downgrading the plantation sector to UNDERWEIGHT from OVERWEIGHT.
