SINGAPORE (Oct 11): CIMB is maintaining its “neutral” rating on the Asean agribusiness as the current CPO price may not be sustainable in 4Q17.
In September, crude palm oil (CPO) production fell 2% m-o-m but rose 4% y-o-y to 1.78 million tonnes due to fewer working days as Malaysia observed three public holidays.
Meanwhile, palm oil exports in September rose 2% m-o-m to 1.52 million tonnes, significantly lower than cargo surveyors’ (SGS and ITS) growth estimates for the same period of 10-10.4% m-o-m.
This was due to lower export volumes to Europe and Pakistan.
As at end September, Malaysian palm oil stocks rose 4% m-o-m and 31% y-o-y to 2 million tonnes, the highest stock level since Feb 2016.
The average CPO price increased by 6% m-o-m to RM2,780 ($893) per tonne in September, while the average palm kernel (PK) price increase 16% m-o-m to RM2,686 per tonne.
CIMB at that time highlighted Sime Darby as its top pick in Malaysia as higher commodity prices are expected to re-rate its share price, while the group has plans to demerge and list its plantation and property divisions.
The research house has also chosen Astra Agro Lestari as its top Indonesian pick for its strong corporate governance and attractive valuation.
In addition, First Resources is one of CIMB's top “add” picks with a target price of $2.32, given superior output growth prospects compared to its peers and low cost of production.
In a Tuesday report, analyst Ivy Ng lee Fang says, “We are sector Neutral as the current CPO price may not be sustainable in 4Q17.”
As at 1.05pm, shares in First Resources are trading at $1.92 or 1.90 times FY17 book with a dividend yield of 2.22%.