DBS Equity Research: Wired Daily 11 Dec 2014

kiasutrader

Publish date: Thu, 11 Dec 2014, 06:42 PM

Plantation Companies - Expect palm oil prices to weaken in the near-term but lower yields in CY15 should limit correction

Iata forecasts record profits for airlines as fuel costs dive

U.S. stocks tumbled, led by energy companies after OPEC cut its forecast on 2015 demand for crude. OPEC reduced its production forecast by 1% to 28.9mil bpd. Sentiment was further affected after Saudi Arabia questioned the need for an output cut, adding to signs OPEC's biggest member will defend market share. Brent fell more than 2% to USD64.3pbl. Technically, the USD59-60bpl as a key short-term inflexion point to watch remains on our radar.

For Plantation Companies, we expect palm oil prices to weaken in the near-term, driven by excess supply of other vegetable oils and the disappearance of discretionary biodiesel demand because of negative processing margins. CPO price of US$606/MT is now below Aug14 low; we expect more downside, but lower yields in CY15 (dry weather in 1Q14/3Q14) should limit correction. A prospective drop in new maturities would also limit supply growth from 2016 onwards. With this in mind, further price weakness would be an opportunity to bottom-fish for upstream planters for a 12-month horizon. For SGX-listed planters, our pick is Bumitama Agri.

Lifted by slumping oil prices and stronger global GDP growth, the world's airlines are expected to chalk up a record net profit of US$19.9bn this year, up from an earlier estimate of US$18bn. In its latest industry forecast, the International Air Transport Association (Iata) delivered a rosy outlook for 2015, with a projected bottom line of US$25bn and a profit margin of 3.2%. This year, revenues will total US$751bn, nearly 5% more than a year ago, and translating to a still-slim net profit margin of 2.7%. US carriers are expected to fare the best in 2014, and Asia-Pacific airlines next best, with oil prices 20% down from 2013.

Rents of private condos continued to soften in November, largely within the expectations of property consultants who are projecting that the weakness will run into next year, given the looming supply glut. SRX Property flash estimates put the slide in rents of private non-landed homes at 0.8%, making November the 10th consecutive month of decline. Rents have fallen 5.7% since the start of the year and 5.3% from November 2013. The rental decline was more severe in the suburbs - 1.2%; the dip was 0.3% for city apartments and 0.7% for city-fringe units. Leasing volumes also shrank.The estimated total of 2,892 units rented out during the month was down 11% from October, but 9.8% higher than in November 2013.

Cross-trading between the Singapore Exchange (SGX) and the Taiwan Stock Exchange (TWSE) could commence as early as July next year, according to TWSE president Michael Lin. TWSE chairman Lee Sush-Der had earlier revealed that if plans proceeded accordingly, the channel would allow investors to trade a specified range of listed stocks in each other's markets at a lower overall cost.

China's annual consumer inflation eased to a five-year low of 1.4% in November. The market had expected 1.6% in November, the same as in October. Rising food prices did not offset underperformance in non-food items; tobacco and liquor prices dragged as China continued to purge corrupt officials, and transport and communication prices also dropped - partly the result of falling global oil prices.

Source: DBS

Bumitama Agri (P8Z)

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