Daiwa expects palm-oil stocks under its coverage to mostly record higher on-year 4Q net profit, thanks to an increase in CPO prices. However, it expects net-profit margins to generally be compressed due to a progressive export tax on plantations in Indonesia. 

The house maintains its Positive sector rating. “We believe Wilmar International’s (F34.SG) 4Q10 net profit will surprise the market on the upside due to a rebound in the net profit for its China-based soybean-crushing operations, as we expect its soybean price hedging to have been accurate during the quarter.” 

 

It rates the stock at Buy with a $6.73 target. It expects Indofood Agri’s (5JS.SG) 4Q10 net profit to provide a negative surprise, “due to its rainfall-impaired fruit yields and weak EBITDA margin for its cooking-oil division.” 

 

It rates the stock at Neutral with a $2.50 target. “Wilmar remains our top sector pick, as it has less exposure to plantations (and therefore less price-risk exposure) than the other palm-oil stocks we cover, and because the market has low expectations vis-à-vis its 2011 net profit.”