Led by the HSI, Singapore stocks did well yesterday and the STI closed 0.7% up for the day. Looking closely at the performance of the index components, stocks which have exposure to crude palm oil (CPO) were amongst the leaders. Wilmar, Noble and Golden Agri rallied 3.5%, 1% and 1.8% respectively.

Malaysia’s CPO export tax unchanged
Malaysia, the second largest producer of CPO said yesterday that it will leave the export tax rate at 4.5% for the month of July. This is the fifth month that tax rates remained unchanged so as to boost shipments. The Malaysian Palm Oil Board mentioned that inventory fell to 1.82 million tonnes in May, the lowest inventory level in nine months. In addition, surveyor Intertek said that CPO exports are likely to have jumped 18% in the first 15 days of June and could continue to grow.
 
Historically, demand in CPO tends to increase before Ramadan because of the month-long communal feasting in the evening. Ramadan begins on 10 July this year.
 
Wilmar reports better profitability in Malaysia
When releasing their 1Q2013 results, Wilmar highlighted that although margins in Indonesia were lower as compared to 1Q2012, margins in Malaysia continued to improve. Despite that, the plantation and palm oil mills “saw a 27% decline mainly due to the lower average selling price of CPO”. Hence, if CPO prices were to rise, Wilmar may see an improvement in their plantation business.
 
Macquarie Equities Research (MER) has a ‘Neutral’ rating with a 12-month target price of $3.50 (last updated: 9 May). The target price is 8% away from Wilmar’s closing price of $3.24 yesterday.
 
Early this year on 22 Feb, Noble and Wilmar announced a strategic joint venture (JV) so as to produce and sell crude palm oil and its by-products. The JV will be used to explore and develop further palm oil opportunities in the Papua, Indonesia.
 
Like Wilmar, MER has a ‘Neutral’ rating on Noble. Its 12-month target price of $1.15 (last updated: 22 May) is 15.6% away from Noble’s closing price of $0.995 yesterday.

Source: Macquarie Research - 18 Jun 2013