Earnings surprise?

The  recent  earnings  season  ended  with  a  mixed  set  of results.  For  upstream  planters,  First  Resources  delivered results  within  expectations  on  higher  production  despite weaker  CPO  prices,  while  Indo-Agri’s  earnings  were affected  by  lower  selling  prices,  weak  volumes,  higher costs, but still in-line with consensus. Golden Agri  reported weak-than-expected  results  no  thanks  to weaker  ASP and higher  inventory  levels.  For  commodities  traders,  Noble’s core  earnings  were  decent  with  its  agri  division  reversing from  losses,  while  Olam’s  results  were  in-line  with  higher operating margin offsetting higher depreciation and finance costs.  Wilmar  announced  better-than-expected  results driven  by  higher  Oilseeds  and  Consumer  product  margins as well as turnaround in Sugar.

Top pick: Wilmar International

Albeit Malaysia’s low inventory level (< 2mn tons) and weak CPO output have been supportive to the recent CPO price rally, we believe further upside could be  limited in the near term  on  (i)  softer  demand  during  winter  season,  (ii) anticipated  higher  supply  of  global  oilseeds,  and  (iii) narrowing  discount  gap  between  CPO  and  soybean  oil. Wilmar remains our top pick within the commodities sector for its (i) huge exposure to growing markets like China, India and  SEA,  (ii)  resilient  palm  &  laurics  business,  (iii)  good proxy for the growing food demand in Asia.

Source: PhillipCapital Research - 2 Dec 2013