DBS Equity Research: Wired Daily 12 Apr 2016

kiasutrader

Publish date: Tue, 12 Apr 2016, 02:44 PM

Plantation stocks - Low output to impact 1Q16 earnings

Oil price rose ahead of Doha meeting this weekend - Brent near-term resistance USD44.7pbl

Mar 16 palm oil output of 1.220m MT (+17% m-o-m) was 8% below our forecast of 1.332m MT, as y-o-y drop in Sabah FFB yields had widened to 22% from 20% in Feb-16. Mar 16 also saw a 23% m-o-m jump in exports to 1.334m MT, 7% better than our forecast, mostly bound for India (+85% m-o-m) and China (+167% m-om). We believe weak output has mostly been priced in (given Ringgit's strength), and that further upside may be limited to c.RM2,900/MT in the near term. The steeper-than-normal drop in 1Q16 harvested volume may adversely impact 1Q16 earnings of mostly prime-aged planters. Our plantation analyst recommends Bumitama Agri for its volume growth; and Wilmar International for its crush margin expansion, sugar price recovery, biodiesel volume, as well as potential spillover impact from IOI's suspension of RSPO certification (WIL). Based on our target prices, both counters offer 11% and 14% upside potential from current levels (excluding dividends).

Singapore's Minister for National Development Lawrence Wong said it's too early to unwind the property cooling measures currently in place. He explained that while the measures have been effective in stabilizing the property market, relaxing them too early may risk a premature market rebound. He added that the government is monitoring the property market closely, taking into account the broader economy and global events, and is prepared to respond where needed.

Singapore Warehouse Company, a unit of property firm Hwa Hong Corporationhas taken a 50% stake in a freehold commercial property in London's Clerkenwell area worth £24.8mil. The property, at 3-7 Herbal Hill, has a total floor area of 32,935 square feet and consists of 7 floors of office space. It is fully leased and produces an annual gross rental income of around £1.1mil or roughly S$2.1mil. The deal is in line with Hwa Hong's strategy to seek "value-add" opportunities in the central London property market for recurrent rental income and long term investment, it said.

US stocks erased earlier session gains, falling moderately as what is forecasted to be the worst US earnings season since the GFC begins with Alcoa the first to release results. The USD fell, underpinning oil and commodity prices. According to Bloomberg, analysts are projecting that profits for S&P 500 companies will contract 10%, compared with calls for flat earnings growth at the start of the year. Alcoa Inc. fell in after hours trade after reporting below consensus revenue and lowering its forecast for global aluminum demand. Oil price rose to a 4-mth high ahead of a meeting in Doha this month where major oil producers will discuss freezing output. Brent futures rose 2.1% to USD42.83pbl. Technically, we peg near-term resistance for Brent crude at USD44.7pbl based on Fibonacci projection.

Source: DBS

Bumitama Agri (P8Z)Wilmar Intl (F34)Hwa Hong (H19)

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