We believe a correction in CPO price has begun andproduction in the months ahead will be stronger. A subsequent price lull shouldtake place as early strong demand is matched by ample  supply. We may need to upgrade our CPO price assumptionin the months ahead. Smaller growth stocks have been largely the sectoroutperformers, while the performance of larger stocks (which are the sector'sproxy) has been flat. We believe this will continue to be the case until the CPOprice correction is over and hence, quality growth stocks should continue to bebought. Maintain Neutral on sector.

CPO price incorrection mode. In our previous sector report dated 13 March 2012, we indicatedthat CPO price could still have some further upside due to potentially disappointingMarch production. CPO price indeed rallied another RM311 per tonne or 9.4% to apeak of RM3,628. Now that CPO price has rallied to the RM3,500'RM3,600 rangeduring the low crop season, we believe some pullback is in order.

Production chargeson. Early data points suggest that Indonesia's production continued to bestrong this year, while Malaysia's production is exiting its seasonal trough alittle earlier than expected. We also learnt during our visit to SouthKalimantan that production in the months ahead will be strong judging from theFFB formation.

Soybean vulnerable topullback. Soybean has inched up further with speculative net long positionshitting  a  record high, surpassing  the  previouspeak by some 25%. We continue to be concerned about a long liquidation,especially with Brazil's completion of its harvesting season this month andUSDA's planting intention number showing only 1% decrease in soybean plantingacreage.

Neutral on sector.Our view that palm oil price will rally and peak in 1Q took longer than expectedto unfold as the rally stretches into April. The average palm oil price of RM3,248per tonne is matching last year's average and exceeds our assumption of RM3,000. We may need to raise our CPO priceassumption slightly but are maintaining our Neutral call as large caps shouldlanguish amid the CPO price correction.

Source: AmeSecurities