We raise our TP to MYR1.15 (from MYR1.10, 2% downside) and retain our NEUTRAL rating. While palm oil prices remain lacklustre and investor interest in the sector is muted, commodity downcycles do not last forever and we believe the current cycle has already bottomed. We also cut our CPO price assumptions and roll forward our valuations, as investors should start looking ahead into 2016.

• Subdued prices but cycle has bottomed. Palm oil prices are still subdued and investor interest in the sector remains dampened. This is understandable, because palm oil prices have been in a multi-year downcycle. Nevertheless, commodity downcycles do not last forever and we believe the current cycle has already bottomed.
• Indonesia and Malaysia’s biodiesel mandates a catalyst? Pending the implementation of Indonesia’s B10 biodiesel programme, palm oil prices have languished so far this year. YTD, the average price per tonne is only at MYR2,260 vs our MYR2,500 assumption. We reduce our 2015 price assumption to MYR2,350, which still implies stronger prices going forward. Biodiesel mandates in Malaysia and Indonesia could still jump-start palm oil prices as the quantum of demand is significant. We expect 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 would come from a structural slowdown in production growth. Judging from the slowdown in new planting in Indonesia, this may happen by 2017 at the latest.
• Cutting 2015 CPO price. We revise our CPO price per tonne assumption for 2015 to MYR2,350, MYR2,500 or 2016 (unchanged) and MYR2,600 for 2017 (from MYR2,500). However, our timber priceassumptions remain unchanged. We adjust our earnings forecasts by +0.4% for FY15, +2.3% for FY16 and +2.8% for FY17.
• We roll forward our valuations to 2016 (from 2015), as investors should start positioning for the future. We have also revised our valuation methodology for WTK, and now use a SOP approach comprising DCF for the log division, replacement method for the plywood unit, and atarget P/E of 16.0x 2016 for the plantation division. We lift our TP to MYR1.15 (from MYR1.10) but keep our NEUTRAL recommendation.