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 Mahamad Rodzi Abdul Ghani
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 Plantation stocks regain shine

Monday, July 9, 2001 - A RESURGENCE in the price of crude palm oil (CPO) has spurred renewed buying interest in plantation stocks in anticipationof a cyclical recovery in the commodity's price.After falling to a 17-year low earlier this year, the CPO price is finallyon its way up again to trade above RM860 per tonne in the cash market. Meanwhile, the benchmark third-month palm oil futures broke the RM900 pertonne barrier last week. Strong interest is expected over the next fewweeks on IOI Corp, KL Kepong and Golden Hope.


















Plantation analysts said these are listed companies which would have thebest exposure to rising palm oil prices. They are projecting the averageCPO price to be within RM900 per tonne in the second half of this year andhit RM1,100 per tonne by year-end.The prospect for CPO prices to gradually improve is due to a series ofpositive indicators such as:Stronger export figures in June;India and Pakistan reportedly giving out warning signals of poor cropseason ahead;China's intention to reconsider its harsh import duty structure for CPO;andThe possibility of another El Nino threat which is detrimental to seasonalcrops such as rapeseed and soyabean.On the local front, palm oil stocks, which stood at 1.19 million tonnes asat end of May, are also expected to deplete further.While all these indicators look promising, analysts do not anticipate amajor upswing in CPO prices to the record highs of RM2,000 to RM2,500 pertonne in 1996-1997.HLG Research, in its plantation sector report, has upgraded itsthree-month view on KL Kepong and Golden Hope to an outright buy while IOICorp which has been a buy even on a three-month view is a strong buy now.A foreign brokerage continues to view IOI Corp as giving the best exposureto the rising palm oil prices."In our view, the company continues to offer the best value as well asdeliver higher returns than its main competitors such as Golden Hope andKL Kepong," it said in its report.IOI Corp has managed to achieve an average return of 12% since 1995, theforeign house added.Meanwhile, KAF Research in its report maintained its outperform projectionfor IOI Corp, describing the company as one of the most efficient low-costproducers among large plantation companies.This is due to its young plantation profile and significant estateplantation exposure in east Malaysia.The group's production cost is estimated at RM700 per tonne, at the most,which is much lower than the industry's average of above RM750 per tonne.Despite the weak palm oil prices, IOI Corp group's plantation divisionstill managed to achieve a reasonable operating margin of 19.8% in thefirst quarter of this year.KAF also expects much lower profit from plantations, due to the "stilllow" CPO prices, and increased contribution from the non-plantationbusinesses to 66.4% of the total operating profit in financial year 2001against 54.3% a year earlier.


Malaysian Palm Oil Board ( MPOB ) Lot 6, SS6, Jalan Perbandaran, 47301 Kelana Jaya, Selangor Darul Ehsan, MALAYSIA.
Tel : 603 - 7802 2800 || Fax : 603 - 7803 3533