Golden Agri

Golden Agri/ CPO: Crude palm oil (CPO) futures rallied as much as 2.6% today to RM2,648/ton on Bursa Malaysia Derivatives, the highest since Sep 2012. On a year-to-date basis, prices for CPO have gained 8.5% in its first advance in three years. Notwithstanding the rise in CPO prices, plantation owner Golden Agri fell to an intra-day low of $0.56 (-4.3%) today on profit taking, after surging 8% between 13 and 18 Nov. We highlight below several positive factors over the past few months that have been supportive of firmer CPO prices, which should benefit the upstream players: 1) A spike in coconut oil price in the Philippines due to Typhoon Haiyan lifted palm kernel oil price, which is a close substitute; 2) 'CPO guru' Dorab Mistry turning bullish after output trailed estimates in Oct; 3) US FDA's proposed ban on artificial trans fats in foods, which may lead to a consumer switch in favour of non-trans fat vegetable oils such as palm oil and canola; 4) Growing concerns that a wet weather forecast for 4Q in the major palm oil growing states of Sabah, Sarawak and Johor, could hinder the harvesting and transportation of the crop; 5) Indonesian government raising its biodiesel blend in subsidized fuel to 10% from 7.5% in Sep, which would increase demand for CPO feedstock; 6) Soybean crop production in the US fell short of expectations in Aug after planting delays and unusually cool and dry weather; 7) Malaysia's stockpiles for Jun fell to a 27-month low of 1.65m mt on the back of weak production and robust domestic consumption; Maybank Kim Eng’s top picks within this sector are Bumitama Agri (Buy, TP $1.14), First Resources (Buy, TP $2.39) and Wilmar (Buy, TP $4.30).