- CPO prices are going through a cyclical decline. We are seeing declining trends in CPO prices'a rapid fall of 19.4% in CPO prices in the past month to RM2480/t levels. This is likely the result of a con'uence of a few factors' slower consumption growth in China/EU, slowdown in biodiesel output (oleochemical processing activity) in Malayisa and the accumulation of CPO stocks. We expect the weakness in palm oil prices to linger in the coming seasons on stocks surpluses.

- Super is poised to bene't'higher gross margins.  We had original factored in declines of '4.7%/'4.3%/'1.5% in palm oil prices over 2012'14 on slowing demand. We seemed to have underestimated the declines. If declines continue and Super stocks up palm oil stocks strategically at relatively lower prices, the weighted average impact to gross margins could be higher than ~5% CAGR over FY12' 14F.

- Playing the CPO decline ' BUY Super, FV of S$2.70.  A cyclical decline in commodities prices was a key reason we favoured Super on initiation, along with the sheer fact that co'ee sales is one of the few things that can grow even in a recession. Given already certain CPO price declines, Super easily reaps gains in the form of lower cost of sales for a sustained period of  time depending on their purchasing discretion.  We continue to favour Super on its ability to grow sales in emerging markets, with a stronger conviction that the earnings growth will also be driven by higher margins on declining commodity prices. We value Super at 20x FY12F EPS, presenting a ~34% upside potential from current levels. Super's share price has yet to re'ect its potential gain from lower CPO prices at the moment. Buying Super is an obvious way to play the CPO price decline. BUY.

Source: AmFraser