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Monday, October 05, 2015

Plantation: El Nino Boost?


Last week, CIMB issued a report on the Plantation sector entitled "El Nino to cut high palm oil stocks?" The report highlighted the followings:

1. The rally in CPO prices brought on by the weak MYR 

This point has been made many times in the past few weeks or months. Looking at the Plantation chart, we can see that the index tested the long-term uptrend line at 6500 in August and rebound in September. With Stochastic hooking up and MACD looks set to follow, a recovery for plantation stocks looks set to begin.


Chart 1: Plantation index's monthly chart as at Oct 2, 2015 (Source: ShareInvestor.com)

2) The concern about El Nino-induced drought for Indonesian planters
From the diagram below, we can see the drought enveloping the southern parts of Kalimantan & Sumatra as well as most areas in Java & Papua New Guinea. This means most Indonesian estates will be hit by El Nino-induced drought though the impact so far has not been felt yet (except for the haze).


Diagram: Rainfall in South East Asia in September (Source: CIMB Research, NOAA)

3) Some Malaysian planters may be spared

From the table below, we can see that some Malaysian planters have very little exposure in Indonesia. Two planters in particular have zero exposure: HSPlant & FGV. The latter may have exposure once it has completed its US$680 million (RM2.8 billion) deal to buy a stake in PT Eagle High Plantations. There is rumor that the deal may not go through. We will have to wait & see.


Table: Malaysia Planters Estate Location (Source: CIMB Research)

FGV has been in a steady downtrend for the past 15 months- dropping from RM4.50 in June 2014 to a low of RM1.20 in late August & early September. FGV may recover significantly due to higher CPO prices and the overall recovery in the Plantation index. I suspect the rebound in share price will pick up pace if the deal to acquire a stake in PT Eagle High Plantations is abandoned.


Chart 2: FGVs weekly chart as at Oct 2, 2015 (Source: ShareInvestor.com)

Based on the above, I believe it is time to re-look at the plantation sector in general and FGV in particular. 

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, plantation stocks (including FGV).

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