Excerpts from analysts' reports

CIMB expects a better year for palm oil producers but ....

IvyNg1.14Analysts: Ivy NG Lee Fang CFA (left), Erindra KRISNAWAN, CFA, SAW Xiao Jun & Laura TASLIM

We anticipate a better year for palm oil producers in 2014 as they are likely to enjoy higher selling prices for their palm products, lower fertiliser costs and a slower rise in labour costs. Also we expect M&A activities in this sector to remain healthy.

However, the sector's valuation is not cheap – it is trading in line with its historical average P/E - and we continue to expect challenges in reining in costs and growing the business.

We maintain our Neutral stance on the sector. Our picks are First Resources (upstream exposure), Wilmar (biodiesel exposure), Ta Ann (mid-cap palm oil player), Astra Agro and London Sumatra (exposure to weak rupiah).

250palmoil"If you ask me for the three most important factors for palm oil today, my answerwill simply be: Biodiesel, Biodiesel and Biodiesel!" – Dorab Mistry, Director, Godrej International Ltd. Photo: Internet Better CPO price prospects. We project the average international CPO price to rise by 9% in 2014 to US$930 per tonne, fuelled by lower palm oil stockpiles, higher biodiesel demand from Malaysia and Indonesia and stronger consumption of palm oil
due to an improving global economy.
Malaysia’s CPO prices are expected to rise at a higher rate of 14% and Indonesia’s at 27% in 2014, driven mainly by our expectations of a weaker RM and rupiah against the US$.

We think it is likely that planters could enjoy lower fertiliser costs in 2014, following the collapse of the cartel for potash, a key fertiliser input for estates. Since then, the average potash price has fallen 23% yoy to US$307 per tonne in 3Q13.
Higher biodiesel blend. The higher biodiesel mandate in Indonesia is expected to be a key demand driver for palm oil in 2014.
This has led Pertamina to call for tenders for 6.6m kl of biodiesel for 2014 and 2015. If successfully executed, it could boost the near-term CPO price as the incremental palm oil supply is not sufficient to cover the sudden spike in palm oil demand of
1m to 2m per annum to meet the higher biodiesel blend.

Malaysia is also planning to raise its biodiesel usage to 500,000 tonnes by end-2014, from 149,630 tonnes currently. 

Lim & Tan Securities sketches scenario of Hengxin following in the footsteps of China Animal Healthcare

Hengxin.1.14Hengxin chart: BloombergFollowing the footsteps of China Animal Healthcare and Sound Global, Hengxin Technology is also attempting to delist from SGX but still maintain its listing status on the Hong Kong Stock Exchange.
• On 15 Aug 2013, the Offeror, Kingever Enterprises Lid, announced that it will make an Exit Offer to acquire all the issued Shares other than those Shares already owned, controlled or agreed to be acquired by the Offeror and the Concert Parties, at the Exit Offer Price of S$0.17 for Singapore Shareholders or HK$1.04 for Hong Kong Shareholders in cash for each Offer Share.

The offeror and the concert parties currently own just over 30% of the company. 
• The Company then appointed DMG & Partners Securities Pte Ltd as its independent financial adviser (IFA) in Singapore. However, as the delisting process has taken much longer than expected, the mandate with DMG has expired and no agreement was reached between the Company and DMG on the extension of the same.
• As a result, the Company has appointed a new IFA in Singapore (EY). It is expected that the SGXST will resume the vetting of the Delisting Proposal upon the re-submission of the Delisting application following the issuance of the opinion from EY.
• As we understand that the offeror and EY are still debating over a fair offer price for minority shareholders in Singapore (as the 17 cents offer price merely values the company at only 2x EV/EBITDA and 0.3x price to book), the required condition has
not been met by the deadline of 31 Dec 2013 i.e. obtaining the requisite SGX approval, the offer has now lapsed.
• Despite the above, we cannot discount the possibility that the Offeror and EY may come to an agreement over a fair offer price soon, thus, enabling them to make a new offer.
• The stock is currently trading at only 0.3x P/B and 2x EV/EBITDA, which is at a sharp discount to its HK-listed peer Trigiant Group (1300 HK) of 1.5x P/B and 5x EV/EBITDA. Hengxin is currently net cash compared to its peer’s of more than 100%
gearing. Down-side also appears limited as we think the share price could be supported at the last offer price of 17 cents (Hengxin’s Hong Kong listed equivalent is currently at 19 cents).
• If successful, Hengxin could see a re-play of China Animal Healthcare whose stock price has risen close to 70% in the past 5 months in Hong Kong since it successfully delisted from SGX. Sound Global’s share price has already risen 12% in the past 2 days after the company announced that shareholders have given them the go-ahead to delist from SGX at 70 cents a share.

Other candidates that did complete delisting and relisted in Taiwan or Hong Kong such as FinaOne, Want Want and Sihuan Pharmaceuticals have seen their share prices either doubling or tripling from their delisting price in SIngapore.

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#1 greenrookie 2014-01-12 09:34
Watch the Indonesian export taxes, it will affect prices of CPO going to major importer like India, and might cause either margin squeeze or loss of market share.

Net net, high prices of CPO should offset that effect. But dun be overly optimistic

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