Wimar down on cut in target price and closure of commodities-focused hedge fund

Goldman Sachs cuts Wilmar target price to $4.90 from $6.40; maintains Buy rating. Broker says target price cut due to lower assumed valuation multiple for plantation business, to bring it in line with peer IOI Corp.; now assumes 16X FY09 PE multiple for plantations business vs 25X previously.

But broker says Wilmar remains top pick in Asian palm sector; "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." Adds, while many palm companies have seen earnings cuts on back of lower palm oil prices, Wilmar has not, thanks to strong downstream margins on back of lower palm feedstock prices.

Singapore commodity plays leading blue chip losers as retreating oil price weighs, raises fears of cooling commodity cycle; Noble, Olam, Straits Asia Res and Wilmar are all down.

"Oil, which has been the poster boy for the commodities rally in 1H08 has fallen below the 200-day MA support at around US$115 per barrel," says DBS Vickers. Adds, news Ospraie Management will close commodities fund due to losses in energy, mining and natural resources equity holdings also likely to hit sentiment. "Our negative view on commodity related plays remains unchanged," broker says.

Funds are likely to hold big commodity stocks, so they'll be more affected than smaller players.
Shares may have further downside risk, particularly if oil continues to come off.