Plantations (Neutral)

Looking back to the history

'''' Excluding the current La Ni''a event, there has been six La Ni''a/ El Ni''o events since 2002 and palm oil price moves when any of the events arises. With the current La Ni''a event expected to last for the next few months, coupled with the recently expanded price gap between CPO and soybean oil, we believe CPO price will likely sustain at high prices over the next few months.

'''' Historically, there has also been positive correlation between: (1) CPO price and KL Plantation Index movements; and (2) CPO price and KL Plantation Index forward P/E.

'''' Zooming in to individual plantation companies, purer upstream plantation companies outperformed the diversified plantation companies on an YTD basis. We believe this trend will continue.

'''' Given our bullish near-term CPO outlook, we are raising our target P/Es for plantation companies under our coverage by 1-2x to 11-15x from 9-14x previously. Despite the upgrade in target P/Es and TPs, we are keeping our Neutral stance on the sector given: (1) The unattractive valuation (in particularly, the bigger plantation players) relative to their regional peers; and (2) Our less optimistic view on the downstream segment's fortunes.

'''' Despite our bullish view on the near-term CPO prices (which we believe will likely sustain at above RM3,100/tonne until La Nina subsides), we are keeping our average CPO price assumption of RM3,000/tonne for 2012.

'''' Top picks are TSH Resources and Tradewinds Plant.

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JCY (RM1.15 - Sell Into Rally): Ripe for some profit taking consolidation

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'''''''' Technically, recent strong breakout above the headline resistance has boosted its changes of further upwards swing towards RM1.19 (50%FR) -1.37 (61.8% FR).

'''''''' Nevertheless, we believe selling into strength is likely the best option as sustainability is a key concern here as technical indicators are getting overbought, reflected by its daily and weekly RSI and slow stochastic indicators. Support is near RM1.00 (38.2% FR).

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Benalec (RM1.34 - Accumulate): Time to reposition for a breakout above the downtrend line channel

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'''''''' Short term technical outlook is on the mend after holding well above the 50-d SMA (now at RM1.31), 50% FR (RM1.30) and lower Bollinger band (RM1.28) support levels, underpinned by improving technical readings of its slow stochastic and MACD while RSI is still consolidating.

'''''''' We expect Benalec to retest the 200-d SMA at RM1.36 and upper Bollinger band near RM1.38 resistances soon. A breakout above RM1.38 will spur prices higher towards downtrend line channel near RM1.42 and RM1.47 (23.6%FR), followed by RM1.59 (77 Jul 11 pivot high). Immediate supports are RM1.28-1.31. Cut loss below RM1.26.

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