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‘CPO prices will rebound’

PLANTER Kuala Lumpur Kepong Bhd (KLK) is hopeful of palm oil prices bouncing back to RM3,300 a tonne, as orders for the food ingredient pile up in the face of tight global supplies.

The third-month benchmark crude palm oil futures on the Malaysian Derivatives Exchange fell RM67 to close at RM3,111 a tonne yesterday. KLK’s chief executive Tan Sri Lee Oi Hian said palm oil prices, despite having slipped from a peak of RM3,600 a tonne in mid-April, is likely to sustain and trade up to RM3,300 a tonne again.

“Prices should hold up in the coming months. Stocks are tight,” he told Business Times at the sidelines of Invest Malaysia 2012 held here yesterday.

He concurred with commodity reports stating tight global edible oil stocks is caused by South America’s drought on soya harvests and a lower rapeseed crop output in India.

“We’re also receiving more orders for Ramadhan in July. Based on these strong fundamentals, we think palm oil prices are likely to recover to around RM3,300 a tonne,” he said.

KLK has, so far, planted up 205,848ha in Malaysia and Indonesia. The plantation business makes up 77 per cent of the firm’s profits.

“We replant using tissue culture ramets in our Malaysian estates as this improves yield per hectare. We also carry out 5,000ha to 8,000ha new plantings in Indonesia every year,” Lee said.

“Going forward, our earnings growth will be driven by the rising yields of our young areas,” he added.

Rising yields in the field has also contributed to rising oil extraction rates (OER) at the mills. In 2008, KLK’s OER was only 20.5 per cent. To date, it has gone up to 21.8 per cent.

KLK is favoured over larger rivals like Sime Darby Bhd and IOI Corp Bhd, thanks to its younger oil palm tree profile.

BIMB Securities analyst Ng Keat Yung said more than two thirds of KLK’s oil palms are of young to prime age. This suggests KLK estates can withstand and profit from erratic weather, which has a negative impact on older oil palms.

“We’re also positive on the disposal of Crabtree & Evelyn,” he said, adding the management can now put more time and resources in oil palm planting and the manufacture of oleochemicals.

“We like that KLK is putting up three refineries and an oleochemical plant in Indonesia to leverage on the Indonesian palm oil taxes that favours downstream investments,” he said.

Ng commented that KLK’s cashflow is strong and sufficient to cover its borrowings. “Their debt is manageable. Gearing is at a minimal of 0.06 times, it’s healthy. Should the company wish to embark on any sizable acquisitions to boost its plantation landbank, they have no problems gearing up,” he said.

Yesterday, KLK’s shares closed 12 sen higher at RM22.10. The BIMB Securities analyst recommended a ‘buy’ and estimated the shares can climb to RM25.10 in the longer term.

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