Plantations (Neutral)

Palm oil inventory declines in Nov 11

'''' Palm oil inventory in Nov 11 declined by 1.5% mom to 2.07m tonnes, mainly on the back of a 14.8% mom decline in production that more than offset lower domestic consumption and exports.

'''' Production declined by 14.8% mom to 1.63m tonnes from a two-year high of 1.91m tonnes in Oct 11, mainly due to: (1) The end of peak production cycle; and (2) Adverse weather that affected harvesting of palm oil. Exports, on the other hand, declined by 9.9% mom to 1.66m tonnes, led by a 17.9%, 20.8%, and 14.1% mom decline from China, India, and Netherlands respectively.

'''' On a yoy basis, palm oil inventory rose by 26.5% mainly on: (1) Higher beginning inventory; and (2) A 15.5% increase in production (2010's production was hit by La Nina), which more than offset a 10.7% increase in exports.

'''' We are keeping our average CPO price assumption of RM3,000/tonne for 2012-13 as:

1. We expect palm oil prices to come off in 2H12 as La Nina is expected to subside (by end-2Q12), which would bring palm oil production higher; and
2. The European debt crisis, which is expected to remain long drawn over the medium term, which may affect demand for vegetable oils including palm oil.

'''' Given the rich valuation of the plantation stocks vis-''-vis the regional peers, we are maintaining our Neutral stance on the plantation.

''

SP Setia (HOLD)

Beranang land update

'''' SP Setia have hit a snag in their Beranang land acquisition, with the Vendor refusing to extend the deadline of the conditions precedent ("CP") for the deal. The original deadline was 1H FY12.

'''' SP Setia is currently seeking legal advice and will seek the appropriate relief from the court, if necessary.

'''' A worst-case scenario would see them missing on the opportunity to develop an RM3.5bn GDV mixed residential township and break into the affordable housing in a big way.'' Nonetheless, they still have their ongoing acquisition for 673 acres of land in nearby Semenyih.

'''' Even if that were to occur, it would not be sufficient to affect our earnings forecasts for SP Setia.

'''' Maintain HOLD and target price of RM3.90, which is the offer price.

''

Mah Sing (BUY)

Pekeliling Update

'''' Mah Sing has hit a snag in its 60/40 Joint Venture Agreement ("JVA") with Asie and Usaha Nusantara ("the Vendors") over the 4.08-acre land acquisition at Pekeliling.''

'''' Recall that under the JVA, Mah Sing was to developed an RM900m mixed development on the land.

'''' The Vendors are arguing that the JVA has lapsed, while Mah Sing is claiming that it has not.''

'''' Impact and timeline of this potential dispute are uncertain given lack of details.'' But even in the event of a worst-case scenario of the Pekeliling JV being called off, we believe that impact will be minimal given their strong project pipeline and land banking activities.

'''' No change to our earnings forecasts and positive outlook for Mah Sing. Maintain BUY and RNAV-based price target of RM2.37 (30% discount to RNAV).

''

KLCI: Critical support near 1450 pts''

'''' Volatility is here to stay for a while as near term market trend will continue to be dictated by headlines in Europe.

'''' Immediate crucial support is the 50-d SMA or uptrend line at 1450. A breakdown below 1450 would mean that the rally from 1311 low (Sep 26) is likely exhausted and will head toward lower Bollinger band (1426). Resistance levels are 10-d SMA (1476), 38.2% FR (1487) and 200-d SMA (1502).

''

RSAWIT: Anticipating a technical rebound''

'''' Currently, RSAWIT is trading at 0.75x P/BV against peers' average of 1.48x. The recent correction from RM1.04 to RM0.83 has nearly reached the 38.2% FR level and we think a temporary base has been formed. Based on hourly chart, technical indicators are rebounding from oversold positions and traders with higher risk appetite may start to accumulate before stronger rebound towards RM1.00-1.04. Immediate supports are RM0.855 (30-d SMA), RM0.83 and RM0.81 (lower Bollinger band). Cut loss below RM0.80