#Hot Stocks* Plantation counters respond differently to India CPO import tax

KUALA LUMPUR (Jan 18): Plantation stocks responded differently to news of India’s import tax on crude palm oil (CPO). While big-cap plantation stocks declined, other counters rose and were among the top gainers until the midday break.

According to news reports quoting India's Agriculture Ministry, the world's second largest consumer of cooking oil will impose a 2.5% import duty on CPO and soybean oil while the rate for refined cooking oils will stay at 7.5%.

CIMB Investment Bank analyst Ivy Ng Lee Fang said the move to protect India's oilseed industry was unlikely to have a major impact on CPO demand and prices.

In a note, Ng said the move could dent India's CPO demand, which will lead to lower prices of the commodity. But, she said, by virtue of CPO being priced more competitively against its rivals, the potential fall in CPO demand may be mitigated.

"Our view is premised on the fact that the government has kept the refined edible oils duty intact, with the duty hike for crude edible oils being less than expected," she said.

Gainers included Sarawak Oil Palms Bhd (SOP) and Kuala Lumpur Kepong Bhd (KLK). At 12.30pm, SOP was trading at RM5.77, with 202,000 shares done, after gaining as much as 16 sen to RM5.81 earlier.

Meanwhile, KLK settled at RM21.92, with 400,000 shares done, after rising as much as 20 sen or 1% to RM22.06 following analyst upgrades.

Plantation heavyweights Sime Darby Bhd and PPB Group Bhd were among the prime movers on the FBM KLCI, which had fallen 3.18 points to 1,677.91 at the lunch break. Sime fell six sen or 0.6% to RM9.46, while PPB declined 10 sen or 0.8% to RM13.

Maybank Investment Bank Bhd said SOP shares were trading at attractive valuations on strong fresh fruit bunch (FFB) production growth. In a note, Maybank IB said SOP was transacted at a price-earnings ratio of 10 times 2013 earnings, compared with the sector's average of 16 times.

"Given its robust FFB production growth and strong track record, SOP is significantly undervalued compared with its peers," said Maybank IB, which maintained its "buy" call on SOP with an unchanged fair value of RM7.56.

Meanwhile, Affin Investment Bank, which has upgraded KLK’s target price to RM19.62 from RM18.64, said the upward revision follows an earnings revision which takes into account KLK's FFB output growth. Barring extreme weather conditions, Affin said KLK is anticipated to register above average FFB output growth as more planted sites in Indonesia reach maturity and migrate towards the prime phase.

"We forecast FFB growth of 14% in FY13 (enhanced by peak crop beyond September 2012), 10% in FY14 and 11% in FY15. KLK continues to offer above average FFB production growth as well as an experienced and prudent management," said Affin, which maintained its 'reduce' call on KLK shares.

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