How Now For The Plantation Sector

Where would an investor get source of information for their investment research?

One of the SOURCE (and not chili sauce hor :p) is from the local financial media.

How can Bursa Malaysia stock market progress?

Don't we want more educated investors/traders/punters?

Now if we get conflicting and confusing financial news reporting, how could the local stock market progress? Without proper information, how long could the investor/punter/trader last in the shark filled stock market? How does one rate their chances?

Here's an easy example.

One of the strong sectors in our local market has to be the plantation sector. Yes? So as an investor/punter/trader, surely one might be interested in this sector since the crude palm oil has recovered a bit lately. Yes?

So how now for the plantation sector?

Let's use recent and latest financial news articles. Let's see if one can come up with an educated reasoning on whether one should be IN this sector, or not.

This was published on the Edge Financial Daily: Analysts maintain mixed calls on planters

• KUALA LUMPUR: Analysts didn’t rush in to upgrade their ratings on PLANTATION [] stocks and forecasts on crude palm oil (CPO) prices despite a lower-than-expected stockpile in November 2009.
  
  Although lower stockpile signals a positive development for the near-term prices of the commodity, OSK Research maintained its underweight call while CIMB Research, AmResearch and ECM Libra stayed neutral on the sector.
  
  All research houses retained their CPO price forecasts, which ranged from RM2,240 per tonne to RM2,300 for 2009, RM2,380 to RM2,500 for 2010 and RM2,440 to RM2,700 for 2011.
  
  ECM Libra said there were risks that investors should keep tabs on — the rain levels in the low season starting this month, soy planting progress in Argentina, El Nino weather, crude oil prices and the corresponding US dollar.
  
  “We believe these key developments will induce the necessary swings in CPO prices in the year,” it added.
  
  Furthermore, it said although stock levels declined in November, exports were flattish month-on-month.
  
  “Looking forward, we do not expect export numbers in 2010 to be exceptionally higher like they were in 2009. To note, exports are so far, for the first 11 months of 2009, 6% higher than that in 2008,” ECM Libra said in a note.
  
  The investment bank, which has a target average selling price for CPO of RM2,400 per tonne for 2010, viewed plantation stocks as expensive.
  
  It retained hold and sell calls on all the plantation counters under its coverage, which include BOUSTEAD HOLDINGS BHD [] (sell) and TSH RESOURCES BHD [] (hold).
  
  OSK Research, meanwhile, said with valuations at “uncompelling” levels, it maintained its underweight stance on the sector.
  
  It said the risk of CPO inventory crossing the two million-tonne mark would emerge again in the second quarter of next year when supply starts to go up.
  
  The research house reiterated its view that the average CPO price would be lower next year due to supply normalisation of both palm oil and soybean oil.
  
  CIMB Research, meanwhile, maintained its CPO price targets at RM2,240 per tonne for 2009, RM2,380 for 2010 and RM2,450 for 2011.
  
  It preferred Singapore-listed planters for their more appealing valuations.
  
  CIMB’s picks in the region remained with Golden Agri Resources Ltd, Wilmar International Ltd, SIME DARBY BHD [], Astra Agro Lestari Tbk, London Sumatra Indonesia Tbk and Sampoerna Agro Tbk.
  
  HwangDBS, meanwhile, cautioned investors to remain selective, as based on its estimates, most local plantation stocks were trading at levels that had already priced in high CPO price expectations next year.
  
  It also expected both soybean and palm oil prices to moderate once soybean oil inventories get replenished post South American harvests.
  
  It favoured sector laggards such as Indonesia’s First Resources Ltd, Wilmar and Sampoerna Agro, which are fundamentally sound but yet overlooked in their earnings growth potential.
  
  HwangDBS’ forecasts for CPO prices were unchanged at RM2,300 per tonne for 2009, RM2,380 for 2010 and RM2,440 for 2011.
  
  RHB Research, perhaps the most optimistic among the lot, kept its outperform call on the sector while maintaining its CPO price targets at RM2,300 per tonne for 2009, RM2,500 for 2010 and RM2,700 for 2011.
  
  It noted the current CPO inventory level of 1.93 million tonnes in November represented only about one-and-a-half months of average historical monthly consumption.
  
  It expected inventory levels to continue to fall through to June-2010, as production levels taper off from the peak.
  
  RHB said every RM100 per tonne rise in CPO prices would benefit purer plantation players like IJM PLANTATIONS BHD [] (IJMP) and Genting Plantations Bhd the most, compared to more diversified firms like Sime Darby Bhd and IOI Corp Bhd.
  
  Based on Bloomberg data, IJMP is trading at a trailing price-to-earnings ratio of 25.12 times, Genting Plantations at 23.71 times, Sime 25.64 times, IOI Corp 28.25 times, Boustead Holdings 8.08 times and TSH Resources at 23.31 times.
  
  Meanwhile, regional peers Wilmar is trading at 16.13 times, Golden Agri at 14.77 times, Astra Agro at 21.38 times and First Resources at 8.38 times.
  
  
  This article appeared in The Edge Financial Daily, December 14, 2009.

So from the above article, what do we get?

• "OSK Research maintained its underweight call while CIMB Research, AmResearch and ECM Libra stayed neutral on the sector... HwangDBS, meanwhile, cautioned investors to remain selective, as based on its estimates, most local plantation stocks were trading at levels that had already priced in high CPO price expectations next year. "

Underweight, neutral and cautious is the call, yes? That's 14th December 2009.

Yesterday, 16 December 2009, on the Business Times.

• Worker woes may hit palm oil earnings
  
  By Ooi Tee Ching Published: 2009/12/16
  
  Malaysia could lose billions of ringgit in palm oil export earnings if a serious labour shortage in Sabah continues, industry officials say.
  
  The plantation sector in Sabah, Malaysia's most productive palm oil producer, has seen its workforce fall by a fifth recently, Malaysian Palm Oil Association (MPOA) chief executive Datuk Mamat Salleh said.
  
  Checks with plantation companies revealed that more than 10 sizeable oil palm estates in the state did not have enough workers because those who had gone home to Indonesia for the Hari Raya Puasa and Haji holidays did not come back.
  
  The main reason was that estates in Kalimantan were paying the same wages offered in Sabah, Mamat said.
  
  "If foreign workers, comprising half of the 600,000 workforce in the palm oil industry, are reduced by 30 per cent, our country's palm oil export earnings could shrink as much as RM10 billion a year," he told Business Times in an interview.
  
  Sabah produces seven million tonnes of palm oil a year, or 40 per cent of the national output.
  
  The palm oil industry earned a record RM65 billion in export earnings last year, thanks to high prices.
  
  Two months ago, East Malaysia Planters' Association (Empa) chairman Othman Walat reportedly said that oil palm planters in Sabah and Sarawak might recruit workers from China, Bangladesh and the Philippines to make up for the shortage of Indonesian workers.
  
  However, industry officials felt that it was easier said than done as other nationals did not prefer working on the estates, while Malaysians were under the mistaken assumption that the job did not pay well.
  
  "But plantations these days are offering productivity-based salaries. A harvester, for instance, can earn between RM1,500 and RM2,000 a month, depending on the quantity and quality of fruit bunches he harvests.
  
  "A family of three working together can earn up to RM3,000," Othman said.
  
  Furthermore, the job offers housing, uninterrupted supply of electricity and piped water, medical, schooling and recreation facilities free of charge by the estate owners.
  
  These are now enjoyed by the foreign workers.
  
  While, the MPOA understands and fully supports the government policy to employ more locals and enhance mechanised harvesting on the estates, the reality is far from expectations.
  
  Mamat said that young locals entering the labour market were just not interested in menial jobs like the harvesting of oil palm fruits.
  
  "We do not want to be too dependent on foreign labour, but do we have any other feasible and practical alternatives?" he questioned.

What can one conclude from that above news article? Not too rosy, yes?

Today, 17 December 2009, on Business Times,

• Plantation stocks set for uptrend
  
  By Ooi Tee Ching Published: 2009/12/17
  
  Analysts are generally bullish on plantation counters in the short term given the shortage of workers on oil palm estates in Sabah, the country's biggest palm oil producer.
  
  Shares of plantation companies bucked the broader market's fall yesterday after industry officials said that palm oil production could be hit by a serious lack of harvesters in the state.
  
  "The market needs to be aware that labour is a growing problem for oil palm planters today, especially with the massive greenfield development in Indonesia over the last two years," KAF Seagroatt-Campbell Securities Sdn Bhd senior analyst Vince Ng said.
  
  Among vegetable oils, palm oil is the most labour-intensive and productivity is also low. A worker can produce up to 20 tonnes of oil a year compared to up to 600 tonnes for US soyabean and UK rapeseed.
  
  It is also difficult to mechanise the harvesting process for palm fruits.
  
  Kenanga Investment Bank analyst Liong Chee How acknowledged that labour shortage in the industry was a longstanding structural problem, but over the last 18 months had become more severe.
  
  "In view of the current high palm oil prices, the short-term solution is to offer higher salaries to skilled harvesters," he said.
  
  "In the longer term, planters will need to invest in mechanisation and automation wherever possible," he added.
  
  Yesterday, palm oil futures on the Bursa Malaysia Derivatives Market rose the highest in six months to close at RM2,586 a tonne.
  
  On the stock market, IOI Corp Bhd, Negeri Sembilan Oil Palms Bhd and Chin Teck Plantations Bhd were among the top gainers.
  
  Another analyst, who declined to be named, has raised his palm oil price target for next year.
  
  "We've upgraded next year's average palm oil price forecast to RM2,600 a tonne from RM2,400 previously. We have also raised our long-term palm oil price to RM2,200 from RM2,000.
  
  "We stay overweight on plantation," he said, adding that his top picks included Sime Darby Bhd, PPB Group Bhd, Genting Plantations Bhd, United Plantations Bhd, Hap Seng Plantations Bhd and Kulim

I am so confused!!!!

I am sure you are too!

How on earth did that reporter comes up with such a headline, "Plantation stocks set for uptrend"????

• Analysts are generally bullish on plantation counters in the short term given the shortage of workers on oil palm estates in Sabah, the country's biggest palm oil producer.

Errr.... so in the short term, shortage of workers means.... it's bullish? How did this conclusion come about?

Is that what the article or reporter is saying???

Let's look at the analysts mentioned in the article...

First one is Vince Ang from KAF.

• "The market needs to be aware that labour is a growing problem for oil palm planters today, especially with the massive greenfield development in Indonesia over the last two years," KAF Seagroatt-Campbell Securities Sdn Bhd senior analyst Vince Ng said. Among vegetable oils, palm oil is the most labour-intensive and productivity is also low. A worker can produce up to 20 tonnes of oil a year compared to up to 600 tonnes for US soyabean and UK rapeseed. It is also difficult to mechanise the harvesting process for palm fruits.

What was Vince Ang saying? Wasn't he bullish or was he just acknowledging the problem associated within the sector?

Second one is Kenanga Investment Bank analyst Liong Chee How

• Kenanga Investment Bank analyst Liong Chee How acknowledged that labour shortage in the industry was a longstanding structural problem, but over the last 18 months had become more severe.
  
  "In view of the current high palm oil prices, the short-term solution is to offer higher salaries to skilled harvesters," he said.
  
  "In the longer term, planters will need to invest in mechanisation and automation wherever possible," he added.

Ok... what is Mr. Liong saying? Isn't he just acknowledging the labour shortage issue? Does it state that he is bullish?

Now I am lucky I have a copy of KN recent report on the sector.

Ahem.... it would appear to me that Mr.Liong has stated clearly that he has a NEUTRAL recommendation on the sector. That report was dated 11 December 2009. Today is only 17 December.

How? Was this analyst bullish?

Lastly, the analyst, who declined to be named!

• Another analyst, who declined to be named, has raised his palm oil price target for next year.
  
  "We've upgraded next year's average palm oil price forecast to RM2,600 a tonne from RM2,400 previously. We have also raised our long-term palm oil price to RM2,200 from RM2,000.
  
  "We stay overweight on plantation," he said, adding that his top picks included Sime Darby Bhd, PPB Group Bhd, Genting Plantations Bhd, United Plantations Bhd, Hap Seng Plantations Bhd and Kulim

How? So out of 3 analysts, only the one, that does not want to be named, gave the outright bullish call on the sector! My is he the special one?

LOL! Yeah, am I dreaming?

So 1 out of 3... and the financial reporter comes out with the conclusion that "Analysts are generally bullish on plantation counters in the short term"

Err.... like this also can meh????

And because of 1 out of 3 analyst... the news reporter boldly proclaim that "Plantation stocks set for uptrend...."

How lah?

Based on these financial news, should I or should not bet on this sector?

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Replies to the posting:

• Gamelion said...
  Currently all commodities r followingclosely to the volatile fluctuationof US$ and have nothing to do with any of the fundamental of the commodities.This might explain the widely confusion and uncertainty among the analyst.

Gamelion, this posting merely reflects on what the local analyst said to our financial media.

This posting is NOT a posting on whether these anaylsts are correct or WRONG.

Let me repeat.

First article highlighted:

• "OSK Research maintained its underweight call while CIMB Research, AmResearch and ECM Libra stayed neutral on the sector... HwangDBS, meanwhile, cautioned investors to remain selective, as based on its estimates, most local plantation stocks were trading at levels that had already priced in high CPO price expectations next year. "

These are "Underweight, neutral and cautious is the call, yes?" And that's 14th December 2009. (note: I am not debating if their calls are correct or not)

My main issue was what's published on today's Business Times article. How did the reporter come with the conclusion that "Plantation stocks set for uptrend...." ?

In that article, he mentioned 3 analyst. Did KAF Seagroatt-Campbell Securities Sdn Bhd senior analyst Vince Ng actually say he was bullish? Did Kenanga Investment Bank analyst Liong Chee say he was bullish? (Liong had a NEUTRAL call in his research report dated 11th December!)

And the only bullish analyst was the un-named analyst!!!!!!!!!!!!!!!!!

Given only 1 of 3 analyst mentioned, only the un-named one was bullish. So how did the financial news reporter come out with the following conclusion...

• Analysts are generally bullish on plantation counters in the short term given the shortage of workers on oil palm estates in Sabah, the country's biggest palm oil producer.

That's my issue. That very statement. How did the reporter come out with the conclusion that analysts are generally bullish on plantation counters?

Yeah... some would quickly put of this fire by claiming that this is normal and that it's also normal with financial news article in the rest of the world. Normal practice what. Every other country does the same. US even worse.

Yes, I am afraid that's sadly so true.

However, what about us? Who cares about the rest of world? Don't we want to see improvement? Don't we want the best for ourselves? If others are bad, does it mean that our news report should also follow suit?

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solomon said...
If you think that production factors are generally going drive the CPO price up, there is two words for you "excuse me".

Off all, why not talk about more pertinents factors like world fats consumption (the demand), overall yield efficiencies (the supply) and the product alternatives like soya (the supply). It makes more cow sense writing, isn't it?

Let see what they write if next 3 months the CPO price suddenly collapse.

Lastly, my dad always says, "over-bullish sometimes can be bullshits" (Sorry not meant to offend, but this is what he says)