PP 7767/09/2010(025354)

1 April 2010
Corporate Highlights
Malaysia RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
MARKET DATELINE Sector Upda te Company No: 233327 -M

1 April 2010
Plantation
Recom : Overweight
USDA Planting Intentions – Concentrating On Corn, (Maintained)
Not Soybean

Table 1 : Plantation Sector Valuations

Fair EPS * EPS growth PER P/NTA P/CF GDY
FYE Price Value (sen) (%) (x) (x) (x) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Sime Darby Jun 8.71 9.85 40.7 51.6 8.5 26.8 21.4 16.9 2.3 15.4 2.5 OP
KLK Sep 16.68 18.40 87.5 123.3 23.7 40.8 19.1 13.5 3.1 15.3 2.7 OP
IOI Corp Jun 5.39 6.65 27.9 31.5 -13.0 13.0 19.3 17.1 3.9 16.9 2.2 OP
CBIP Dec 2.92 3.60 41.2 49.7 37.5 20.6 7.1 5.9 1.4 5.6 4.8 OP
IJMP^ Mar 2.55 2.35 13.8 15.9 34.8 15.4 18.5 16.0 1.7 14.6 2.0 UP
Genting Plant# Dec 6.95 6.65 40.3 46.8 34.0 16.0 17.2 14.9 1.9 15.6 1.6 UP
Sector Avg 3.1 23.8 19.9 16.1
^ FY10-11 valuations refer to those of FY11-12 # Formerly known as Asiatic *Normalised

♦ USDA planting intentions for soybeans in 2010 below consensus… Chart 1. CPO vs soyoil and rapeseed
The USDA released the prospective planting intentions for 2010 last night. oil prices
US$/tonne

According to the report, farmers in the US intend to plant up 78.1m acres

CPO Soy Oil Rapeseed Oil

1,700

of soybeans in 2010, up by a slight 0.77% yoy from the 77.5m acres 1,500

actually planted last year. This is 0.6% lower than consensus expectations 1,300

of 78.55 m acres of soybean. 1,100

900

♦ … and also for corn, although intended planting %-increase is 700

higher. As for corn, intended planting in 2010 is up 2.7% to 88.8m acres, 500

from the 86.5 million acres actually planted last year. This is 0.4% below
300

consensus expectations of 89.2m acres.

100
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Chart 2. CPO vs crude oil prices

♦ Ethanol mandates taking priority? We are not surprised by the higher 160 1400

percentage increase in intended plantings of corn vs soybean, given that 140 Correlation factor of 1200
0.9x in 2007

the ethanol mandates in the US are being implemented more aggressively narrowed to 0.75x in

C P O s p o t p r i c e s (U S $ / to n n e )
C r u d e o i l p r i c e s (U S $ / b a r r e l )

120
1H08, and rose again 1000
Correlation factor to 0.95x in 2H08.

now. We note that the amount of corn that is used to produce ethanol has 100 started normalising to
0.7x from Dec-08, but 800
rose again from Sep-

been increasing steadily over the last few years, from 14% in 2005, to an
80
09 onwards to close
to 1x 600
60

estimated 33% in 2010. 40

400

♦
200

Positive impact on CPO, albeit not significant, in our view. Although

20

0 0

we note that the planting intentions seem to more often than not turn out
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lower than actual planting, we believe the positive impact of the minimal Crude Oil (US$/barrel) CPO (US$/tonne)

increase in soybean planting and the increasing preference of corn planting

in the US would not be very significant on CPO prices.

♦ Risks include: (1) a significant change in crude oil price trend; (2)
weather abnormalities; (3) change in emphasis on implementing global
biofuel mandates and trans-fat policies; (4) significant changes in trade
policies of vegetable oil importing or exporting countries; and (5) a faster
or slower-than-expected global economic recovery.

♦ Forecasts. No change to our CPO price assumptions and forecasts.

♦ Investment Case. In view of the many external factors and potential

volatilities they bring, we continue to advice investors to stick to the more
liquid stocks and to trade the volatilities. We maintain our Overweight on
the sector and our Outperform recommendations on IOIC, KLK, Sime Hoe Lee Leng
(603) 92802184
Darby and CBIP, and Underperform recommendation on Genting
hoe.lee.leng@rhb.com.my
Plantations and IJMP.

Please read important disclosures at the end of this report.

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 1 April 2010

Table 2. Valuation Bases

Fair Value
Company (RM/share) Valuation Methodology

Genting 6.65 Target 16.5x PER CY10 earnings.

Plantations
CBIP 3.60 Target PER of 8x CY10 for the oil mill engineering division and 14x CY10 for the plantation division.

IJMP 2.35 Target 16.5x PER CY10 earnings

IOIC 6.65 Target PER of 18x CY10 for the plantation division, 12.5x CY10 for the manufacturing division and
13.5x CY10 for the property development and investment property divisions (on fully diluted basis).

KLK 18.40 Target PER of 18x CY10 for the plantation division, 12.5x CY10 for the manufacturing division, 13.5x
CY10 for the property division and zero value less potential provisions for the retail division.

Sime Darby 9.85 10% discount to SOP comprising: target PER of 18x CY10 for the plantation division, 15x CY10 for the
energy & utilities division, 13.5x CY10 for the heavy equipment and property divisions and 12x CY10
for the motor and other small divisions.
Source: RHBRI

Table 3: Impact of every RM100/tonne increase in CPO price

Genting Plantations +5-7%

KLK +4-6%
IJMP^ +5-7%
IOI Corp +3-5%
Sime Darby +4-6%
CBIP +2-4%

Source: RHBRI

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
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differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not
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persons may from time to time have an interest in the securities mentioned by this report.

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of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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 1 April 2010
Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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the actions of third parties in this respect.

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