Wilmar upgraded to Buy by Goldman Sachs

Goldman Sachs upgrades Wilmar to Buy from Neutral on back of more positive view on crude palm oil (CPO) prices, lifts target price to $4.10 from $3.15. Says tightening soybean supply, Malaysia's low CPO inventories, better outlook for crude oil prices should support CPO prices; raises FY09-FY11 CPO price forecasts by 17%-20%. Says Wilmar looks particularly attractive as has, "lowest valuations among large-cap plantation stocks, high organic growth potential and may benefit from a higher MSCI weighting." Says stock deserves to trade at premium to Singapore market given resilient earnings profile; "Wilmar should be a core holding for long-term investors as it offers high quality, high-growth exposure to the palm oil sector given market leadership in its downstream businesses and strong organic growth potential."

Wilmar's 4Q08 results above expectations again

Wilmar's 4Q08 results beat market expectations. Credit Suisse says 219% on-year jump in FY08 net profit to US$1.53 b was 9% above consensus forecast with strong performance driven by better profitability, higher sales volume, full-year impact from the Kuok merger; maintains Outperform rating with $3.30 target price.


Nomura says strong earnings growth is, "a good demonstration of Wilmar''s resilient earnings model and strong management team;" maintains Buy rating and $3.30 target price.


Golden Agri-Resources said its 4Q net profit declined 77% to US$133.3 m on weaker crude palm oil prices and the lower exceptional gains. The palm oil plantation company recorded a US$760.8 m net gain on changes in fair value of biological assets a year earlier. The company booked a US$151.2 m net gain from the change in fair value of biological assets in 4Q08.

The company said crude palm oil prices suffered a severe decline in 4Q due to the global economic downturn, but added that it remains in a good position to weather the "challenging market conditions."

Golden Agri proposed to issue up to 399 m new ordinary shares of US$0.025 each on the basis of one new share for every 25 existing shares in the company. Golden Agri said the bonus shares are intended to reward its current shareholders. The shares will be issued to eligible shareholders, with the record date to be determined later.

Once again, Wilmar's results have exceeded expectations. It is fully justified that Wilmar's resilience commands a higher premium than Golden Agri.

Palm oil prices near the bottom?

The price of palm oil, down 67% from a Mar record, is near the end of its decline because supplies will slow and demand for the edible oil will ride out the global slowdown, Goldman Sachs said.

The price is "to a bottom," analysts led by Patrick Tiah in Singapore said in a report. " Edible oil demand has remained relatively resilient even during severe recessions."

The prices of crude oil and other commodities have tumbled this year on concern the worldwide economic slump will reduce demand. Malaysia and Indonesia, the largest producers of palm oil, are felling oil palms and planting younger saplings to cut output. Palm oil is their biggest agricultural export.

The price of the edible oil, based on previous cycles, is mainly driven by supply, Goldman said in a report. The replanting will help reduce output, while the yield from plantations is under "stress," Goldman said. It’s not clear when any rebound will happen, according to the report.

Palm oil, used in cooking and to make biofuels, on Mar 4 reached a record 4,486 ringgit (US$1,236) a tonne in Malaysia.

Still, Goldman cut its price forecast for palm oil for the next 2 years by between 41% and 50%, joining analysts at CLSA Asia Pacific-Markets and UBS AG. Palm oil will probably fetch 1,000 ringgit a tonne in 2009, and 1,250 ringgit in 2010, analysts at CLSA said in a Nov14 report. UBS on Nov 6 cuts its price forecast for 2009 by 31% to US$450 a tonne.

Palm oil prices the next 2 years

Palm oil prices in Malaysia next year may trade on average 32% lower than current levels, partly because of oversupply and fading demand for biofuels, CLSA Asia- Pacific Markets said.

Palm oil will probably fetch 1,000 ringgit (US$278) a ton in '09, and 1,250 ringgit in '10, analysts at CLSA Asia-Pacific Markets in Kuala Lumpur said in a report. The '09 forecast is 64% lower than this year's projected average of 2,750 ringgit, James Gruber, a Kuala Lumpur-based analyst at CLSA, wrote in an e-mail today.

"Serious oversupply issues will take time to resolve," the brokerage said in the report. "The biofuels story is waning, providing less demand support."

Wilmar's 3Q08 results above expectations

Wilmar said 3Q08 net profit more than doubled to US$482.6 m driven by strong sales volume, higher margins. Goldman Sachs says the record quarter was above expectations, annualized performance came in 18% ahead of broker's own estimate, 20% above consensus. Says downstream margins very strong, margins benefitted from hedging, tight credit market curbed rivals. Adds balance sheet improved significantly; "the significant balance sheet improvement should also allay funding concerns for stock and convertible bond investors." Maintains Buy rating, target price not given.above expectations

AusGroup's outlook challenging

JPMorgan cuts AusGroup target price to $0.40 from $0.95 following recent 1Q09 results. Broker says engineering services company's results in line with expectations but outlook turned more challenging, "as operators begin to reassess their E&P plans, we believe the risk of a slowdown in orders from key customers is high." Adds declining commodity prices may also hurt demand in mineral, resources segment. Cuts FY09, FY10 net profit forecasts by 4%, 23%, respectively. But maintains Overweight rating on valuation grounds; "we believe that the year-to-date 85% correction in stock price has brought valuations to undemanding levels."

Singapore Petroleum Co - cautious Asian refining sector

Merrill Lynch downgrades Singapore Petroleum Co. (SPC) to Underperform from Buy to reflect caution over Asian refining sector, margin revisions in '09-'10; "additionally, we cite the company's accounting complexity and rapidly rising working capital as major risks." Cuts target price to $2.00 from $10.00 after changing valuation basis to trough cycle valuation from discounted cashflow model. Expects complex refining margins to fall if Asia heads into recession; "the unusual extent of the profit deterioration in 3Q08 and the lack of catalyst from a sector perspective lead us to recommend investors to exit the stock."

Beware! Big cut in tp. And with oil prices still likely to fall, may not be time to buy SPC yet.