- Window-dressing at the end of the year. In this report, we identify plantation stocks that are frequently subjected to window-dressing activities at the end of the year. Window-dressing could provide trading opportunities for investors with a high risk appetite. In spite of the potential rise in share prices, we are keeping our recommendation on the plantation companies under our coverage as share prices might normalise after the window-dressing activities.

- According to consensus, the plantation sector in Malaysia is trading at PEs of 24.6x for 2013F and 18x for 2014F. We have assumed an average CPO price of RM2,400/tonne for this year and RM2,500/tonne for next year.

- KLK – the most window-dressed big-cap stock. In our stock universe, Kuala Lumpur Kepong (KLK) is the most popular candidate for window-dressing. Among the big-cap stocks, KLK recorded one of the highest share price increases in the final quarter of four out of the past five years.

- In 2012, KLK’s share price climbed by 9.3% from RM21.29 on 1 October to RM23.27 on 31 December. The lowest return was in 2008 when KLK’s share price fell by 7.3% from the start to the end of 4Q. Even then, KLK declined the least among the big plantation companies. Averaging out over five years, the increase in KLK’s share price in the fourth quarter of the year was 11.8%.

- KLK’s free float is about 53%. Average daily volume trade of KLK shares is roughly 0.8 million compared with five million for IOI Corporation and six million for Sime Darby. EPF, which is the only government-linked fund in KLK, owns a 15.6% equity interest.

- IOI Corporation is second most frequent. The second most popular big-cap plantation company for window-dressing is IOI Corporation. On average, IOI’s share price climbed by 3.2% in 4Q of each year in the past five years. The highest increase ever achieved was 15.7% in 2011 while the lowest was a negative 15.2% during the financial crisis in 2008.

- Share price retracements in 2011 and 2013. Following the window-dressing activities, we find that the share prices of most

of the plantation stocks had held steady except during the periods of 2011 and 2013. KLK’s share price fell by 10.7% to RM20.77 by 31 March 2013. IOI’s share price slid by 6.9% from 31 December 2012 to 31 March 2013. This year, election jitters contributed partly to the fall in share prices in the first quarter.

- Maintain Neutral on the sector. Fundamentally, we like Genting Plantations (GenP) for its healthy balance sheet and growth underpinned by the plantation division in Indonesia. The group is also expected to pay a special interim dividend of 44 sen less 25% tax. Apart from GenP, we have a BUY on Sime Darby for the potential spin-off of its property division.

Source: AmeSecurities