We raise our TP to MYR4.70 (from MYR4.42, 21% upside) and retain our BUY rating. Palm oil prices remain lacklustre and investor interest in the sector is muted – although commodity downcycles do not last forever and we believe the current cycle has already bottomed. We lower our CPO prices but roll forward our valuations, as we believe investors should start looking ahead into 2016.

• Subdued CPO prices but cycle has bottomed. Palm oil prices are stillsubdued and investor interest in the sector is muted, which is understandable since the prices have been trending down for a few years. Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed.
• Indonesia and Malaysia’s biodiesel mandates could be a catalyst. Pending the implementation of Indonesia’s B10 biodiesel programme, palm oil prices have languished so far this year. The average YTD price of CPO per tonne is only at MYR2,260 vs our average assumption of MYR2,500. We reduce our 2015 price assumption to MYR2,350, which still implies stronger prices going forward. Biodiesel mandates by the governments of Malaysia and Indonesia could still give palm oil prices a jump-start as the quantum of demand would significant. We see the average price to strengthen to MYR2,500 per tonne next year.
• Long-term CPO production growth eases. While biodiesel may jumpstart palm oil prices, a sustained upcycle in prices may stem from a structural slowdown in production growth. Judging from the slowdown in new planting in Indonesia, this could happen by 2017 at the latest.
• Cutting 2015 CPO prices. We revise our CPO price per tonneassumptions to MYR2,350 for this year, MYR2,500 for 2016(unchanged) and MYR2,600 for 2017 (from MYR2,500). Our timber price assumptions stay the same, however. Our price projections have been adjusted by -12.2% for FY15, +1.5% for FY16 and +8.1% for FY17.
• Rolling forward valuations to 2016. We roll forward our valuations to2016 (from 2015), as investors should start positioning for the future. We have also revised our valuation methodology for Ta Ann, with our SOP calculation now comprising DCF for the log division, replacement method for the plywood unit, and a target P/E of 16.0x 20 16 for the plantation division. Our TP rises to MYR4.70 (from MYR4.42). Maintain BUY.