PUBLIC INVESTMENT BANK

PublicInvest Research Sector Update

KDN PP17686/03/2013(032117)

Wednesday, September 11, 2013

PLANTATIONS
KL PLANTATION INDEX
8,600.00 8,400.00 8,200.00 8,000.00 7,800.00 7,600.00 7,400.00 Mar-13

Neutral
Better-Than-Expected Inventories
Palm oil inventories unexpectedly remained at at 1.66m mt for the month of August, the unchanged inventory levels coming about mainly because of better-than-expected exports that offset increased production levels. Meanwhile, August 2013s average CPO price stood at RM2,358/mt vs Julys average of RM2,320/mt and August 2012s RM2,845/mt. Our CY13 and CY14 average CPO price assumptions remain at RM2,450/mt and RM2,550/mt respectively. Inventories remained at 1.66m mt, against consensus expectations of 1.71m mt. Meanwhile, stock/usage ratio inched marginally lower to 8.0%, mainly attributed to encouraging demand from overseas demand despite higher FFB production.

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

SECTOR PERFORMANCE 1M -1.8 3M -1.0 6M 4.0

Absolute Returns

RECOMMENDATION TABLE

Export demand driven by China and EU. Palm oil exports grew by 7.4% m-o-m and 5.6% y-o-y. Stronger m-o-m demand from China (+10.2%), EU (+48.8%) and other nations (+8.8%) offset lower exports to India (-3.0%), Pakistan (-20.6%) and US (-29.3%). The weakened Indian currency, which has slumped to a record low against the dollar this year, has dampened buying interest for palm oil as buyers are deferring the purchases. Meanwhile, strong demand from China was attributed to replenishments as its inventory levels weakened in July. Production in Peninsular Malaysia and East Malaysia gained. Production in Peninsular Malaysia and East Malaysia registered gains of 0.9% and 7.1% respectively. Sabah had the strongest production growth, up 8.8%. Overall, FFB yield improved from 1.66 mt/ha to 1.76 mt/ha in August. We continue to see production improving progressively in the next couple of months amid the high production period. Encouraging growth for the first 10 days of Sept. According to independent market surveyor Intertek, the first 10 days of Sept have seen exports jump by about 10% compared to the same period in Aug. CPO price forecasts remain unchanged. We maintain our RM2,450/mt average CPO price forecast for 2013 and RM2,550/mt for 2014.

FGV GENP IOI KLK SIME TSH

Current (RM) 4.20 9.80 5.40 22.30 9.48 2.32

Target (RM) 3.91 9.77 5.72 21.04 9.37 2.28

Upside (%) -6.9 -0.3 5.9 -5.7 -1.2 0.9

Call U O N N N N

Chong Hoe Leong T 603 2031 3011 F 603 2272 3704 E chonghoeleong@publicinvestbank.com.my

FINANCIAL SUMMARY

Price (RM) @ 10 Sept Mkt Cap (RMm) 4.20 9.80 5.40 15,322.4 7,436.2 34,493.0

EPS (sen) 2013F 12.0 41.5 26.1 87.5 51.6 10.4 2014F 12.7 47.2 27.1 101.9 54.5 13.0

EPS Growth (%) 2013F -45.5 -3.8 -8.4 -11.6 -26.4 12.9 2014F 5.2 13.8 5.3 16.4 5.5 24.6

P/E (x) 2013F 35.0 23.6 20.7 25.5 18.4 22.3 2014F 33.1 20.8 19.9 21.9 17.4 17.8

P/B (x)

ROE (%)

Dividend Yield (%)

Company
Felda Global Ventures Genting Plantations IOI Corp KL Kepong Sime Darby TSH Resources

2013F 2014F 2013F 2.1 2.1 2.6 3.2 2.1 2.1 2.1 1.9 2.5 3.1 1.9 1.9 7.8 8.7 12.5 12.5 11.2 9.1

2014F 2013F 2014F 7.9 9.2 12.2 13.9 11.1 10.5 1.6 1.2 2.7 2.9 2.5 1.2 1.7 1.4 2.8 2.9 2.6 1.5

22.30 23,749.5 9.48 2.32 56,969.1 2,032.6

Source: PublicInvest Research estimates

Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK

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Table 1: Exports by Destinations Lower exports to India, Pakistan and US were offset by better demand from China, EU and other nations
Countries ('000 mt) China EU India Pakistan US Others Total Aug'12 269.2 171.8 273.0 92.7 116.9 519.7 1,443.3 July'13 304.1 151.7 158.2 129.2 74.3 601.4 1,418.9 Aug'13 335.0 225.8 153.4 102.6 52.5 654.2 1,523.5 MoM (%) 10.2 48.8 -3.0 -20.6 -29.3 8.8 7.4 YoY (%) 24.4 31.4 -43.8 10.7 -55.1 25.9 5.6 YTD 12 2,062.5 1,430.0 1,536.9 917.5 684.9 4,340.9 10,972.7 YTD 13 2,400.2 1,415.0 1,269.7 968.5 719.0 5,005.6 11,778.0 YoY (%) 16.4 -1.0 -17.4 5.6 5.0 15.3 7.3

Source: MPOB, PublicInvest Research

Table 2: MPOB Monthly Figures Stockpiles were supported by encouraging overseas demand, which exceeded FFB production growth
('000 mt) Production Imports Exports Domestic consumption Closing stock Aug'12 1,664.2 65.1 1,443.3 172.3 2,112.8 July'13 1,674.9 50.1 1,418.6 290.0 1,663.7 Aug'13 1,735.3 7.5 1,523.5 217.6 1,665.6 MoM chg (%) YoY chg (%) 3.6 -85.0 7.4 -25.0 0.1 4.3 -88.5 5.6 26.3 -21.2 YTD 12 11,171.0 1,130.2 10,972.7 1,278.9 2,112.8 YTD 13 11,802.2 474.3 11,778.0 1,464.8 1,665.6 YoY (%) 5.7 -58.0 7.3 14.5 -21.2

Source: MPOB, PublicInvest Research

Table 3 : CPO Prices vs Stock-to-Usage Ratio

RM/mt 4,000 % 16.0 14.0 12.0 10.0 8.0

Stock-to-Usage ratio was down from 8.1% to 8.0%

3,500 3,000 2,500 2,000

1,500
1,000 500 0

6.0
4.0 2.0 0.0

Aug-08

Aug-12

Stock/Usage Ratio

CPO Prices (RM/mt)

Source: MPOB, Bloomberg, PublicInvest Research

Table 4 : Price Discount Between CPO and Soybean Oil

USD/mt 1,600 % 0 -5 -10 1,200 -15 1,000 800 600 400 -40 200 0
Aug-09 Aug-12
Aug-07 Aug-08 Aug-10 Aug-11 Aug-13

Discount between CPO and soybean oil prices had come down from USD244/mt in July to USD241/mt last month

1,400

Aug-13

Aug-09

Aug-10

Aug-11

Dec-08

Dec-12

Dec-09

Dec-10

Dec-11

Jun-09

Jun-10

Jun-11

Jun-12

Feb-10

Feb-11

Feb-12

Feb-09

Feb-13

Jun-13

Oct-09

Oct-10

Oct-11

Oct-08

Oct-12

Apr-09

Apr-12

Apr-13

Apr-10

Apr-11

-20 -25
-30

-35

-45 -50
Dec-09 Dec-10
Dec-07 Dec-08 Dec-11 Dec-12

Jun-10

Feb-09

Feb-12

Feb-08

Feb-10

Feb-11

Crude Palm Oil

Soybean Oil

Discount between CPO and soybean oil (%)

Source: MPOB, Bloomberg, PublicInvest Research

Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK

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Feb-13

Jun-13

Jun-08

Jun-09

Jun-11

Jun-12

Oct-08

Oct-11

Oct-07

Oct-09

Oct-10

Oct-12

Apr-08

Apr-11

Apr-09

Apr-10

Apr-12

Apr-13

PUBLIC INVESTMENT BANK BERHAD

Less optimistic on Indias demand. The rupee has tumbled more than 17.5% YTD, reaching a record low of 68.8250 against the USD dollar. A deepening ecnonmic slowdown coupled with the withdrawal US funds has raised uncertainies over the Indian market outlook. The weakening Indian currency will also trigger the concern on Malaysians palm oil exports as Indias imports account for 11% of our countrys exports. 2QCY13 results roundup. Amongst the 6 plantation companies under our coverage, Felda Global Venture Holdings was the worst performer followed by Genting Plantations and KL Kepong. IOI Corp and Sime Darby, surprisingly, produced a good set of numbers given the challenging prospects in the industry, mainly attributed to other core businesses, which offset the lower plantation earnings. Company

vs Consensus' Estimates Below (-31.0%) Below (-11.4%) Within (+1.1%) Below (-9.0%) Above (+6.0%) Below (-7.2%)

Felda Global Ventures Holdings Genting Plantations IOI Corp KL Kepong Sime Darby TSH Resources

vs PublicInvest Research's Estimates Below (-32.0%) Below (-12.3%) Below (-9.0%) Below (-11.0%) Within (+3.0%) Below (-10%)

Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK

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PUBLIC INVESTMENT BANK BERHAD

RATING CLASSIFICATION
STOCKS OUTPERFORM NEUTRAL UNDERPERFORM TRADING BUY The stock return is expected to exceed a relevant benchmarks total of 10% or higher over the next 12months. The stock return is expected to be within +/- 10% of a relevant benchmarks return over the next 12 months. The stock return is expected to be below a relevant benchmarks return by -10% over the next 12 months. The stock return is expected to exceed a relevant benchmarks return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call. The stock return is expected to be below a relevant benchmarks return by -5% or more over the next 3 months. The stock is not within regular research coverage.

TRADING SELL NOT RATED

SECTOR OVERWEIGHT NEUTRAL UNDERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months. The sector is expected to perform in line with a relevant benchmark over the next 12 months. The sector is expected to underperform a relevant benchmark over the next 12 months.

DISCLAIMER
This document has been prepared solely for information and private circulation only. It is for distribution under such circumstances as may be permitted by applicable law. The information contained herein is prepared from data and sources believed to be reliable at the time of issue of this document. The views/opinions expressed herein are subject to change without notice and solely reflects the personal views of the analyst(s) acting in his/her capacity as employee of Public Investment Bank Berhad (PIVB). PIVB does not make any guarantee, representations or warranty neither expressed or implied nor accepts any responsibility or liability as to its fairness liability adequacy, completeness or correctness of any such information and opinion contained herein. No reliance upon such statement or usage by the addressee/anyone shall give rise to any claim/liability for loss of damage against PIVB, Public Bank Berhad, its affiliates and related companies, directors, officers, connected persons/employees, associates or agents. This document is not and should not be construed or considered as an offer, recommendation, invitation or a solicitation of an offer to purchase or subscribe or sell any securities, related investments or financial instruments. Any recommendation in this document does not have regards to the specific investment objectives, financial situation, risk profile and particular needs of any specific persons who receive it. We encourage the addressee of this document to independently evaluate the merits of the information contained herein, consider their own investment objectives, financial situation, particular needs, risks and legal profiles, seek the advice of their, amongst others, tax, accounting, legal, business professionals and financial advisers before participating in any transaction in respect of any of the securities of the company(ies) covered in this document. PIVB, Public Bank Berhad, our affiliates and related companies, directors, officers, connected persons/employees, associates or agents may own or have positions in the securities of the company(ies) covered in this document or any securities related thereto and may from time to time add or dispose of, or may be materially interested in, any such securities. Further PIVB, Public Bank Berhad, our affiliates and related companies, associates or agents do and/or seek to do business with the company(ies) covered in this document and may from time to time act as market maker or have assumed an underwriting commitment in the securities of such company(ies), may sell them or buy them from customers on a principal basis, may have or intend to accommodate credit facilities or other banking services and may also perform or seek to perform investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment advisory or other services from any entity mentioned in this document. The analyst(s) and associate analyst(s) principally responsible for the preparation of this document may participate in the solicitation of businesses described aforesaid and would receive compensation based upon various factors, including the quality of research, investor client feedback, stock pickings and performance of his/her recommendation and competitive factors. Hence, the addressee or any persons reviewing this document should be aware of the foregoing, amongst others, may give rise to real or potential conflicts of interest.

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Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK

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