Mixed outlook for plantation sector

PETALING JAYA: Analysts are divided over the prospects of the plantation sector following news that palm oil inventory in October 2019 fell by 14.4% year-on-year to 2.3 million metric tons (mt) due to lower-than-anticipated output.

The plantation index gained 100.49 points or 1.46% to 6,968.69 points today, with Sime Darby Plantation Bhd and Kuala Lumpur Kepong Bhd being the top gainers to close 17 sen and 16 sen higher at RM5.15 and RM22.36, respectively.

In a report, MIDF Research said it is maintaining its negative call on the sector with an unchanged 2019 CPO price target of RM2,090/mt.

“Despite the year-over-year decline in October 2019 production level, the year-to-date output remains high at 17 million mt due to a robust fresh fruit bunch (FFB) yield in 1HCY19. Assuming the peak output period has ended early in September 2019, coupled with a steady export demand growth rate, we are likely to see a continued gradual downward trend in the inventory level.

“Meanwhile, the weakening export demand from India might partially dampen the price which could be mainly predicated on factors such as: India’s 5% tariff hike, Chinese buyers resume loading up soybean and the winter season where palm oil might not be the most suitable oil to be consumed as it tends to turn semi-solid or thick,” it said.

However, PIVB Research is maintaining an overweight call on the sector, with a CPO price forecast of more than RM2,800/mt in the coming months due to the tightening CPO supplies in the global markets.

“We think the upcoming 3Q19 corporate results for Malaysian plantation companies may still be lukewarm as CPO prices only gained momentum in late-August.

“During the quarter, Sarawak Plantation registered the strongest FFB production growth, up 20.9%, followed by FGV (14.8%) and IOI Corp (12.4%). We think 4Q19 results could be one of the strongest quarterly results seen since 2017,” it said.

The research house also said small-to-mid cap plantation stocks remained as favourites as valuations remain attractive at current levels.

“We believe there should be stronger demand towards the year-end as buyers tend to lock in orders ahead of the possibility of higher palm oil export duty in both Indonesian and Malaysian markets as CPO prices have surpassed the minimum threshold level of RM2,250/mt,” said PIVB in its note.

Plantation counters push Bursa Malaysia into positive territory at midday

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Year-end window dressing on Bursa expected to be broad-based

PETALING JAYA: The window dressing phenomenon that usually occurs at year-end is expected to be spread across a variety of KLCI constituents this year, according to a note from HLIB Research.

The research house said that it had only considered stocks which had been part of the KLCI for more than five years.

“This narrows it down to 20 stocks. Of these 20 KLCI stocks, 17 have a positive December return probability exceeding 50%, suggesting that the window dressing effect is rather broad-based.”

“Stocks that have positive December returns probability of more than 75% are Axiata Group Bhd, Digi.Com Bhd, Genting Bhd, Hong Leong Bank Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Malayan Banking Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd, Petronas Chemicals Group Bhd, Public Bank Bhd, Sime Darby Bhd and Tenaga Nasional Bhd,” it said.

Its year-end target remains unchanged at 1,660 points.

In its note, HLIB Research explained November has traditionally been a red month for the KLCI, with negative returns ranging -1.3% to -3.7% in seven of the past 10 years.

“Broadly, we reckon that this could be due to misses on the third quarter results season which are mostly reported in November. This suggests that (albeit simplistically), one should position for a possible year-end window dressing if there is weakness this month,” it added.

HLIB Research also pointed out that regardless of market movement throughout the year, the year-end window dressing phenomenon has been quite significant.

“The KLCI managed to record positive December returns in nine out of the past 10 years ranging between 0.6% and 4.8%. Even in 2014 which was the exception (-3.3% Dec returns), the KLCI still managed to rebound 5.2% from its month low (around mid-Dec) to the year end,” it said.

Fundamentally, the KLCI has been the worst performing market among the Asean 5, which prices its valuations at close to one standard deviation (SD) lower for its price-to-earnings ratio, two SD higher for its spread between earnings yield and 10-year MGS, and a near 10-year low for its price-to-book ratio.

“Externally, progress on the US-China trade talks appears to have a positive tilt, with a possible ‘Phase 1’ deal before year end. On the downside, we are hopeful for this to be contained given telltale signs that foreigners are already ‘underweight’ on Malaysia.”

Bursa Malaysia remains in the red on profit-taking at midday

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IOI Properties turns down proposed RM17m gratuity payment to late founder

PUTRAJAYA: IOI Properties Bhd has decided to turn down a proposed gratuity payment of RM17.73 million to the late Tan Sri Lee Shin Cheng, said CEO Lee Yeow Seng (pix).

“The family has decided to decline the gratuity payment, so that it was not tabled during the meeting. We feel that we don’t need it,“ he told reporters on the sidelines of the company’s AGM today.

According to the company’s AGM notice on Bursa Malaysia, there was a resolution to seek approval to pay a gratuity of RM17.73 million to the late Tan Sri Lee Shin Cheng in recognition of his 44 years of service and contribution to IOI Properties Group.

This, however, has raised concerns from the Minority Shareholder’s Watch Group (MSWG) that if the the gratuity was approved, it would go to Shin Cheng’s estate and the amount would accrue to the beneficiaries of his estate, who were not known.

Meanwhile, Yeow Seng said the company is targeting RM2 billion in sales and RM2 billion in new launches for FY2020 ending June 30.

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Drug companies reach US$260m settlement, averting first federal opioid trial

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