In our view, crude palm oil (CPO) prices are undervalued relative to crude oiland soybean oil, and we expect some convergence going forward. Over the last 2 months, crude oil and soybean oil prices have risen 17% and 7%,respectively, while CPO prices have gained 1%. Over this period, CPO’s price discount to soybean oil has widened from 24% to 28%. We see more upside potential for CPO prices over the next 3-6 months on higher CPO biodiesel demand, potentially higher soybean prices and a narrowing price discount to soybean oil. We maintain our positive view on the plantations sector.
Watch Indo Agri, Wilmar, Golden Agri and First Resources.
Friday, June 20, 2008
STI +0.3% On US Cue; May Rebound To 3100-Chartist
Singapore shares heading higher in early trade as better Wall Street lead sparks some buying interest; STI +0.3% at 3002.29, off earlier high of 3012.34, with resistance tipped at 10-day moving average of 3027. Several blue chips seeing good gains; best performers are CapitaLand (C31.SG) +2.6% at S$5.88, NOL (N03.SG) +2.8% at S$3.36. Technical analyst at local house tips market to head higher in near-term; "I think we will rebound to 3100 on the back of a rebound in the Dow, before we come back and test recent lows." But thin volumes and move off early highs suggest today's upside may be limited; gainers outnumber losers 121 to 84 in broad market.
Play still on resources. Noble, Olam and CPO counters.
Play still on resources. Noble, Olam and CPO counters.
Thursday, June 19, 2008
STOCK CALL: JPMorgan downgrades Synear Food (Z75.SG) to Underweight from Overweight, cuts target price to S$0.35 from S$1.30. Broker says the frozen food maker is likely to continue to face margin pressure due to loss of market share to major rival Sanquan and rising advertising, labor costs; warns "the downside risk from these has yet to be built into the market consensus." Cuts FY08, FY09, FY10 earnings estimates by 13%, 24%, 23%, respectively. Says big target price cut reflects move to different valuation method, now uses P/E rather than DCF approach, new target implies forward P/E of 7X. Share down 6.0% at S$0.47.
Target price of 0.35 is lower than current price. Expects futher downside pressure. At 0.35, the P/E is 7X which is higher than most S-share issue.
Target price of 0.35 is lower than current price. Expects futher downside pressure. At 0.35, the P/E is 7X which is higher than most S-share issue.
STI Off 1.8%; Extends Fall, US Futures Bearish
Singapore shares head lower at start of afternoon session as bearish lead from pre-market Dow futures adds to already subdued mood; STI down 1.8% at 2984.45, nearing support at last week's intraday low of 2979, lowest level since March 27. AmFraser senior VP of research Najeeb Jarhom tips index to find buying support soon; "the STI should be able to hold around 2970-80, traders with a month-end/midyear window dressing view, as well as 2Q reporting season in mind and who do not expect a repeat of the 1Q series of plunges should begin to accumulate below 3000." Broad market volume remains thin; losers outnumber gainers 3 to 1.
Wednesday, June 18, 2008
STI +0.5%; China, Commodity Plays Up; 3056 Cap
Singapore shares holding onto gains at start of afternoon session as China market rally lifts mood, pre-market Dow futures give bullish lead; STI +0.5% at 3044.33 with resistance tipped at 10-day moving average of 3056. But marketwatchers remain cautious of calling breakout rally; "our short-term view is still that the market is rangebound between 2800-3200," says UOB-KayHian research head Nancy Wei. S-chips rallying, FTSE ST China index +3.4% at 453.16; commodity plays also doing well on continued optimism that commodities offer bright spot amid wider economic uncertainty, Olam (O32.SG) +6.6% at S$2.75, Noble (N21.SG) +4.4% at S$2.35
Tuesday, June 17, 2008
Singapore Complex Refining Margins Fall To 5-Week Low-Merrill
Singapore complex refining margins fell to a five-week low, suggesting fading regional demand and a pickup in supply continue to weigh on most oil products in the region, a report by Merrill Lynch showed Tuesday.
Complex refining margins in Singapore fell by $1.61 to $12.52 a barrel in the week ended June 13, while simple refining margins were down $1.95 at minus $8.36 a barrel, the lowest in at least 18 months. The weakness in simple margins was due mainly to softer fuel oil, whose refining margin hit a fresh record low of minus $31.48 a barrel.
Middle distillates' spot margins also narrowed due to rising regional supply with the maintenance season coming to an end. But gasoil margins were still the best among all products, partly because "strong near term demand from China and Australia are keeping prices on the boil", the report said. Gasoil's refining margins slipped by $1.37 to $39.47 a barrel, while jet kerosene's margins were down $1.88 at $38.22 a barrel.
Gasoline's margins remained strong, though down for the third straight week, largely because China, the largest exporter of gasoline in the region, has become a net importer since May due to continuous domestic shortages. Gasoline spot margins were down $1.84 at $13.34 a barrel.
Bad news for SPC. With a drop in refining margin, SPC bottom line could be hit as well.
Crude Oil price may be heading towards record high but if there is a real demand for oil, shouldnt there be strong demand to refine the products? The rise in Crude Oil could in a large part be due to speculation!
Complex refining margins in Singapore fell by $1.61 to $12.52 a barrel in the week ended June 13, while simple refining margins were down $1.95 at minus $8.36 a barrel, the lowest in at least 18 months. The weakness in simple margins was due mainly to softer fuel oil, whose refining margin hit a fresh record low of minus $31.48 a barrel.
Middle distillates' spot margins also narrowed due to rising regional supply with the maintenance season coming to an end. But gasoil margins were still the best among all products, partly because "strong near term demand from China and Australia are keeping prices on the boil", the report said. Gasoil's refining margins slipped by $1.37 to $39.47 a barrel, while jet kerosene's margins were down $1.88 at $38.22 a barrel.
Gasoline's margins remained strong, though down for the third straight week, largely because China, the largest exporter of gasoline in the region, has become a net importer since May due to continuous domestic shortages. Gasoline spot margins were down $1.84 at $13.34 a barrel.
Bad news for SPC. With a drop in refining margin, SPC bottom line could be hit as well.
Crude Oil price may be heading towards record high but if there is a real demand for oil, shouldnt there be strong demand to refine the products? The rise in Crude Oil could in a large part be due to speculation!
US Flood Damage Positive For Palm Oil Price -CS
Flood damage for corn and soya crops in U.S. midwest is good news for crude palm oil (CPO) prices, says Credit Suisse. "The crop damage in the U.S. could become a big positive catalyst for oilseed and vegetable oil prices," says broker. Notes U.S. is world's largest producer of corn and soya, too late to replant corn crop that has been destroyed. Adds, continued strength in crude oil prices, falling vegetable oils stock-to-use ratio, strikes in Argentina hitting soybean exports also positive for CPO prices. But says rising Malaysian palm oil inventories is a potential negative. Maintains Overweight call on Asian palm oil sector with Indofood Agri (5JS.SG) a top pick; rates Outperform with S$3.40 target. Indofood Agri shares closed +2.1% at S$2.42 yesterday.
Bad for
Corn - China Sun, Luzhou
Soya - Celestial, Pine Agritech
Bad for
Corn - China Sun, Luzhou
Soya - Celestial, Pine Agritech
Monday, June 16, 2008
STX PO Outlook
STX Pan Ocean (V33.SG) reverses early gains, heads lower as worries over outlook for shipping rates weigh; share down 4.4% at S$2.61. Korean-listed shares (028670.SE) down 5.0% at KRW1,980. Stock had earlier shrugged off continued slump in Baltic Dry Index (BDI) as investors appeared to have taken view that weaker shipping rates priced in, but share now in negative territory, suggests some investors worried that BDI could continue to tumble, putting stock under pressure. "STX Pan Ocean's share price is a mirror image of the BDI, it's a trading stock and there's no point trying to bottom fish it when the BDI is going to keep falling; it's like trying to catch a falling knife," says analyst at local house. Foreign house analyst says parent STX Corp.'s (011810.SE) plan to issue 5.39 million common shares to raise KRW307.84 billion not impacting STX Pan Ocean share. Singapore share now below support at S$2.68 (78.6% Fibonacci retracement of rise from March 20 low of S$2.32 to May 20 high of S$4.00) with next key support tipped at March 20 low of S$2.32.
UOBKH 2H08 Strategy
UOBKH Singapore 2H08 Strategy: Staying Ahead Of Inflation
We are facing a difficult environment of slowing economic growth and rising inflation on the back of high commodity prices.
l The best thematics are companies with strong pricing power or those that can grow their revenue faster than rising costs. There include plantation and upstream oil & gas-related companies. Selected REITs will benefit from rental reversions in 2008-09. Rising interest rates, coupled with a strong loan growth, will be positive for banks. S-chip companies that have a strong brand name and are seeing strong domestic demand should stay ahead of inflation. On the flip side, we are negative on the aviation sector and neutral on traditional defensive/yield stocks whose cost increase will likely outpace their revenue growth.
l On value picks, property developers are deep in value following a sharp price decline since 3Q07. Share prices should be supported by their worst-case RNAVs despite negative sentiments in the physical market throughout 2008.
l The FSSTI will likely be range-bound in the 2,800-3,200 region in the short term. A new low is not envisaged at this stage. Our 12-month bottom-up FSSTI target is 3,630. The market's 2008 PE of 13.6x is at the bottom of its long-term historical PE band and FSSTI’s P/B of 1.70x is below Asia ex Japan's average of 2.3x. FSSTI's core EPS growth is forecast to contract 2.6% in 2008 before rebounding to a growth of 12.6% in 2009. We are OVERWEIGHT on the Singapore stock market.
Top BUYs: DBS, OCBC, SembCorp Marine, AusGroup, ASL Marine, First Resources, Indofood Agri Resources, City Developments, Ho Bee, A-REIT, CCT, Parkway Life REIT, China Hongxing, China Sports.
Top SELL: SIA
We are facing a difficult environment of slowing economic growth and rising inflation on the back of high commodity prices.
l The best thematics are companies with strong pricing power or those that can grow their revenue faster than rising costs. There include plantation and upstream oil & gas-related companies. Selected REITs will benefit from rental reversions in 2008-09. Rising interest rates, coupled with a strong loan growth, will be positive for banks. S-chip companies that have a strong brand name and are seeing strong domestic demand should stay ahead of inflation. On the flip side, we are negative on the aviation sector and neutral on traditional defensive/yield stocks whose cost increase will likely outpace their revenue growth.
l On value picks, property developers are deep in value following a sharp price decline since 3Q07. Share prices should be supported by their worst-case RNAVs despite negative sentiments in the physical market throughout 2008.
l The FSSTI will likely be range-bound in the 2,800-3,200 region in the short term. A new low is not envisaged at this stage. Our 12-month bottom-up FSSTI target is 3,630. The market's 2008 PE of 13.6x is at the bottom of its long-term historical PE band and FSSTI’s P/B of 1.70x is below Asia ex Japan's average of 2.3x. FSSTI's core EPS growth is forecast to contract 2.6% in 2008 before rebounding to a growth of 12.6% in 2009. We are OVERWEIGHT on the Singapore stock market.
Top BUYs: DBS, OCBC, SembCorp Marine, AusGroup, ASL Marine, First Resources, Indofood Agri Resources, City Developments, Ho Bee, A-REIT, CCT, Parkway Life REIT, China Hongxing, China Sports.
Top SELL: SIA
Friday, June 13, 2008
Another downgrade for STX PO
[Dow Jones] STX Pan Ocean (V33.SG) continues to slump as investors fret dry bulk shipping rates are set for seasonal weakness; share down 8.3% at S$2.77. "Our short-term positive view on rates is drawing to a close, as the spring fling gives way to the summer slump," says Goldman Sachs. Broker notes iron ore negotiations are key to timing, magnitude of shipping rate correction; says if negotiations are delayed further, shipping rates likely to correct soon, and more sharply than market expects. Advises investors to sell dry bulk shippers into strength; maintains Neutral rating on STX Pan Ocean with S$2.50 target price. Next support tipped at S$2.68 (78.6% Fibonacci retracement of rise from March 20 low of S$2.32 to May 20 high of S$4.00. Korean listing (028670.SE) down 9.2% at KRW2,070.
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