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Stocks In Focus (Palm Oil Prices Outlook, SingHaiyi, F&N) – 01/07/13
Could Palm Oil Prices Spike After The “Hazy” Weather?
Palm oil prices over the past year has not fared well due to supply-side gluts but some now think the haze may present an opportunity for prices to recover. Harvesting could be hampered as a result of the haze and the current dry spell, leading to a slowdown in the production of fresh fruit brunches, lower stockpiles and consequently higher prices. Compared to 1997, similarities are present as the haze back then caused crude palm oil (CPO) production growth in Malaysia and Indonesia to slow after some time lag leading prices to hit the roof, jumping 104 percent to RM2,408 per tonne by January 1998 compared to RM1,180 per tonne the previous July. However, it is unclear whether the haze was the determining factor leading to the price spike as 1997 was the year of the Asian financial crisis, devaluation of the rupiah and the CPO export ban imposed by the Indonesian government to contain domestic prices leading to a drop in world supply, thus raising international export prices to a historical high.
Significance: Analysts have warned that there has to be a period of two straight months of a dry spell for production to be affected, a duration that seems improbable now. Singapore and Malaysia-listed plantation stocks shows that share prices have not reacted much from pre-haze levels, and any decline seen over the past week appears to have been related to overall market weakness.
SingHaiyi’s To Raise Up To $226.5m And Expand Business Into US
Shareholders of SingHaiyi Group gave approval for a significant shift in its strategy to expand its business outside Singapore into the US. At the extraordinary general meeting last Friday, resolution for a one-for-one rights issue at 1.5 cents each, and a placement at the same price to Acquire Wealth – a vehicle 30 percent-owned by Neil Bush and his wife, and 70 percent-owned by his business partner Gordon Tang was carried out. This move will allow the company to raise $226.5 million. SingHaiyi has not identified specific regions or types of assets in the US that it will look at, but Bush said “there is plenty of capital down in our war chest”. According to Bush, with the company’s asset base increased significantly, it is now poised to extend its “investment banking approach” beyond Singapore to property developments in the US. He feels that more companies would follow its lead to make opportunistic investments in US.
Significance: With a firmer and strong dollar, US is seen to be on the road to recovery. Already Temasek Holding’s looking to capitalise on US companies’ edge in sectors such as energy, healthcare and technology. The move by SingHaiyi may just be about the right time to enter US property market.
F&N To Consider Separating Its Property And F&B Businesses
Fraser and Neave (F&N), which is now controlled by Thailand drinks group Thai Beverage Public Co’s major shareholder, Charoen Sirivadhanabhakdi, said it will appoint advisors to study and review alternative strategic options available to the company to unlock shareholder value. “This may involve a segregation of its property-related businesses from its non-property related businesses,” the company announced. “No decision has yet been made by the board to proceed with any specific proposal or strategic option.” Analysts have been expecting some kind of restructuring for F&N following Charoen’s takeover. On another note, its shareholders have approved the proposed capital reduction exercise to be carried out by the Company pursuant to Section 78G of the Companies Act, Chapter 50 of Singapore, which will involve a cash distribution by the Company to the shareholders of the Company of S$3.28 in cash for each ordinary share in the capital of the Company held by a shareholder as at the books closure date, amounting to an aggregate distribution of approximately S$4.73 billion.
Significance: Citing from DMG & Partners analyst Goh Han Peng, “The food and beverage (F&B) business and property arm of F&N are sizable players and a spin-off or separation of the two will likely result in an overall lift in market valuations”
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