Industry

0747 GMT [Dow Jones] Singapore banks rallying; trader says investors are
picking up stocks ahead of their 1Q09 earnings due later this week on hopes
worst is over for Singapore economy; DBS (D05.SG) +9.1% at S$10.36, OCBC
(O39.SG) +10.4% at S$6.49, UOB (U11.SG) +9.7% at S$12.62 vs STI +4.9%.
Citigroup says while 1Q09 bank results likely to be weak, this will be no
surprise to market; "consensus estimates (down 42-53% from peak) may have
already discounted poor 1Q09 bank results." Reiterates bullish sector
stance, "we are positive on all of the Singapore banks given our view that
the Singapore economy is passing its point of worst contraction, and our
strategist views that Singapore STI could recover to the 2400 level."
Charts show solid traded volume, suggests buying interest has momentum but
all 3 banks overbought on technical indicators; suggests while trend
positive, scope for further near-term upside may now be limited, according
to Dow Jones technical analysis. (KIG)

Singapore Banks 1Q Earnings Likely Underpinned By Robust Economy

By Sam Holmes
Of DOW JONES NEWSWIRES

TAKING THE PULSE: Singapore's three main banks are mostly expected to report
an increase in first-quarter net profit driven by the economic recovery in Asia
and improving loan growth and asset quality.
"We should expect a relatively strong set of results," one analyst at a
foreign bank said. "Loan growth should could continue to pick up on the back of
the recovery in the economy and provisioning should start to fall but we probably
won't see any major writebacks just now."
Singapore's economy grew at a record 32.1% in the first quarter as the Asian
economic recovery continued at full speed.
While loan growth is expected to be healthy on the back of the recovery in
the property markets, margin compression is likely to weigh on the banks' net
interest incomes.

DBS Group Holdings Ltd. (D05.SG) - May 7
Market expectations: Seven analysts polled by Dow Jones Newswires expect a
first-quarter net profit of S$555.7 million, up 28% from S$433 million a year
earlier.
Key issues: DBS, southeast Asia's largest bank by assets, has the lowest
loan-to-deposit ratio of the three banks and its chief executive, Piyush Gupta,
earlier this year flagged plans to grow its loan book. The bank also has
ambitious plans to expand its non-Singapore business in Asia, especially in
China. UBS analysts said DBS "has the largest capacity to expand loans and we
believe it will reassess its minority investments which could result in capital
gains."

Oversea-Chinese Banking Corp. Ltd. (O39.SG) - May 5
Market expectations: Six analysts polled by Dow Jones Newswires expect a
first-quarter net profit of S$490.2 million, down 10% from S$545 million a year
earlier.
Key Issues: OCBC's first-quarter net profit is likely to be weaker in the
absence of one-off gains. It reported S$201 million of one-time gains from its
life assurance business in the first quarter of 2009. Core earnings, however, are
expected to be stronger due to lower allowances though net interest income growth
is likely to be flat. DMG & Partners Securities said while housing applications
were strong in the quarter, "this will only contribute to loan growth over the
next few quarters, but not significantly affect 1Q10 organic loan growth."

United Overseas Bank Ltd. (U11.SG) - May 7
Market expectations: Five analysts polled by Dow Jones Newswires expect a
first-quarter net profit of S$551.2 million, up 35% from S$409 million a year
earlier.
Key issues: Asset quality is likely to continue to be UOB's defining strength
in the first quarter and lower provisioning will probably help the bottomline.
But its net interest income is likely to weaken further. Macquarie Research
analysts "believe that the group could see a higher than peer contraction in margins."

By Claire Leow
   May 11 (Bloomberg) -- Palm oil, used in everything from
Twix candy to diesel fuel, may be poised to end its fastest
rally in almost seven years and drop 25 percent as the world's
biggest growers reap record harvests.
   Indonesia and Malaysia, the top two producers, may boost
world supplies by 5 percent this year, according to government
and producer estimates. India, the second-biggest buyer, will
probably slow imports because of rising stockpiles, Citigroup
Inc. said. The world's most-used cooking oil, which closed at
2,685 ringgit in Kuala Lumpur on May 8, may average 2,100
ringgit ($600) a ton in 2009, Deutsche Bank AG analysts Su-Yin
Teoh and Rachman Koeswanto said.
   "We expect palm oil to weaken," said Sunaina Dhanuka, an
analyst at Macquarie Group Ltd. in Kuala Lumpur. "Production is
likely to recover in coming months as weather conditions improve
and exports are likely to slow down to exhaust the current
stockpiles." Dhanuka forecast an average price of 1,850 ringgit
a metric ton this year in a May 5 report.
   About $33 billion worth of the oil, squeezed from bunches
of plum-sized fruit, is consumed each year for frying and in
margarine, based on estimates from the U.S. Department of
Agriculture and the current price. The European Union agreed
last year that at least 10 percent of the energy used in road
and rail transport in 2020 will come from renewable sources,
such as vegetable oils.

                  Only Gasoline Better

   Palm oil is the second-best commodity investment this year,
with a gain of 58 percent. Only gasoline's 69 percent jump has
been larger among the biggest exchange-traded commodities,
according to data compiled by Bloomberg. The cooking oil has
climbed 93 percent from a three-year low on Oct. 24, the fastest
gain since at least June 2002, according to Bloomberg data.
   A drop to the level predicted by Macquarie would cut
Malaysia's export revenue by $4.9 billion, assuming no change
from last year's volume. Net income of Kuala Lumpur-based Sime
Darby Bhd., the world's biggest producer by market value, may
drop 38 percent to 2.18 billion ringgit in the year ended June
30, according to the median of 15 analyst estimates compiled by
Bloomberg.
   Prices advanced this year as declining output in Malaysia,
the second-biggest grower, caused inventories to shrink 40
percent from a record in November to 1.36 million tons in March,
the lowest since July 2007, Malaysian Palm Oil Board data show.

                       More Supply

   Supplies are likely to climb as palm trees enter their most
productive season, said Citigroup analysts Penny Yaw and
Margarett Go. Palms in Indonesia and Malaysia, which account for
90 percent of world output, typically yield 55 percent of their
oil in the second half. Malaysia reaped 9.5 million tons from
July to December last year, up 16 percent from the first half,
according to board data.
   Malaysia's crop will total 18.3 million tons this year,
Minister of Plantation Industries and Commodities Peter Chin
said April 7, up 3.4 percent from 2008. The harvest in Indonesia
may rise 6.8 percent to 20.5 million tons, said Susanto, the
marketing head of the Indonesian Palm Oil Association, on May 8.
   "I'm still fundamentally bearish," said James Fry,
managing director of UK-based LMC International Ltd., a
consultant to the agricultural industry. "Prices are 300
ringgit to 400 ringgit too high," he said by phone May 6.
   The highest price in a year relative to soybean oil, its
main competitor, is also encouraging expectations for lower
prices. The two commodities are the world's most consumed
vegetable oils and can be interchangeable for frying, food
preparation and fuel.

                     Argentine Crop

   Soybean oil was almost twice the price of palm in October
and is now only 12 percent higher, according to data compiled by
Bloomberg. Futures show palm oil declining 9.4 percent by
November and soybean oil rising 2.7 percent by December.
   Supplies of soybean oil were limited after a drought in
Argentina cut soybean production by 27 percent. Inventories in
the U.S. will fall 20 percent from a year earlier to 165 million
bushels by Aug. 31, a five-year low, according to the USDA.
   Demand for palm oil has risen so much that the market is
now in so-called backwardation, where prices for prompt delivery
are more expensive than those later in the year. India increased
imports of crude palm oil 40 percent to 2.26 million tons in the
five months to March 31.
   "Imports will remain high in the coming months as there's
going to be no local supplies," said B.V. Mehta, executive
director of the Solvent Extractors' Association in Mumbai.
Vegetable oil purchases may rise 43 percent to 8 million tons in
the year to Oct. 31 from the previous year, he said May 8.

                     China Purchases

   Buyers built record inventories in India in anticipation of
higher import duties in June, a signal that purchases may slow,
Citigroup's Yaw and Go said in a report April 21.
   China, the biggest importer, may also curtail purchases.
The government warned against shipping "excessive" amounts of
oilseeds last month because stockpiles are growing and shipments
were set to jump.
   The country boosted soybean imports 30 percent in the first
quarter to 10.2 million tons, according to customs data. Inbound
shipments of palm oil gained 9.4 percent to 1.37 million tons.
   Supplies may increase after the Northern Hemisphere
harvests this autumn. U.S. farmers plan to grow a record 76
million acres of soybeans this year, the U.S. Department of
Agriculture said March 31. Soybeans climbed 29 percent in the
past two months, compared with a 15 percent gain in corn. That
may convince growers to plant more soybeans instead of corn,
Citigroup said.

                       Out of Line

   About 10 percent of palm oil is used outside of foodmaking,
according to the American Palm Oil Council. Prices may face more
pressure because demand for biodiesel is waning after the 60
percent collapse in crude prices from last year's record. Only
subsidies make fuels viable at these prices, according to Credit
Suisse Group AG. Crude climbed 10 percent last week in New York.
   "Vegetable oil prices are again getting too high in
relation to price-sensitive biofuel demand," LMC's Fry said.
"Unless crude oil prices continue to defy the worst downturn in
global demand for oil products since World War II, it is
difficult to be bullish at current prices."
   Demand is suffering because of the global recession. U.S.
soybean use fell 7.2 percent in March as domestic and overseas
sales declined, the government said. Processors including Bunge
Ltd. converted 4.34 million short tons of soybeans into
vegetable oil and livestock feed, down from 4.679 million tons a
year earlier.

                     'Unsustainable'

   The global economy is in a "severe" recession with
"worrisome parallels" to the Great Depression, according to
the International Monetary Fund. The Washington-based lender
predicts the economy will shrink as much as 1 percent this year.
   Palm oil this year will average 2,100 ringgit a ton,
according to the median forecast in a Bloomberg News survey of
eight banks, with predictions ranging from 2,500 ringgit to
1,850 ringgit. The most active contract on the Malaysia
Derivatives Exchange averaged 2,067 ringgit so far this year.
   Prices are "unsustainable" and will probably drop by 20
percent to 25 percent, said Deutsche Bank analysts Su-Yin and
Koeswanto in a report May 1. Next year, prices will decline
again to average 1,900 ringgit a ton, they said.
   "It's not economical to buy palm oil," said Koeswanto by
phone May 7.

JAKARTA (Dow Jones)--Cargill Inc., one of the world's largest traders of agricultural commodities, may stop buying palm oil from PT Sinar Mas Agro Resources and Technology (SMAR.JK), a leading Indonesian palm oil supplier, if allegations of environmental destruction prove correct, according to an undated statement on its Web site.

Cargill is the third multinational company to reconsider its business relationship with Sinar Mas Agro, after Unilever NV (UN) and Nestle SA (NESN.VX) canceled their contracts with the Jakarta-listed company.

Cargill said it will delist Sinar Mas Agro as a supplier if allegations of improper land conversion and illegal planting in deep peatland, as alleged in a Greenpeace report issued in December, are proven to be true and no corrective action is taken by the company. Cargill hopes for a reply from Sinar Mas Agro by end-April, it said.

The Roundtable on Sustainable Palm Oil, a certification body started by companies and non-profit organizations, is investigating the allegations.

Sinar Mas Agro President Director Daud Dharsono told Dow Jones Newswires by telephone that the company will appoint a team of independent consultants to review the Greenpeace allegations.

Dharsono declined to discuss the volume of palm oil supplied to Cargill.

Nestle's contract with Sinar Mas was reported to have been for annual shipments totaling 4,000 metric tons valued around $3.2 million a year.

Unilever, the first to break off its relationship with Sinar Mas, had a contract to buy $30 million worth of palm oil each year.

Sinar Mas Agro's annual total global sales of palm oil average $1 billion.

Sinar Mas Agro is a subsidiary of Sinar Mas, which also owns Asia Pulp and Paper.

Several global retailers, such as U.S.-based office supplies' giant Staples, have terminated their contracts with Asia Pulp and Paper over allegations that it, too, illegally cleared rainforests.

Raising fair value on CPO price assumption increase

Indofood Agri's (IFAR) 4Q09 earnings was within expectations, coming in at
IDR287.7b versus a loss of IDR743.7b a year earlier, due to FX and
biological assets' fair value gains. After adjusting our CPO price
assumption to RM2,250/tonne (from RM1,900) and factoring in contributions
from its sugar business, our FY10F earnings is lifted 10.7% to IDR1.3t.
With Malaysian planters trading at significantly higher valuations of ~19x
FY10 EPS, we ascribe a P/E of 15x (previously 14x), narrowing the premium
between the two countries' valuations. Our new target price is S$2.02
(previously S$1.63). Maintain NEUTRAL - valuations do not appear
attractive.

Results in-line. IFAR 4Q09 earnings came in at IDR287.7b, a vast
improvement from a loss of IDR743.7b a year ago. However, we note that this
was mainly attributable to significant FX losses and losses arising from
changes in fair value of biological assets, both totaling IDR1.9t in 4Q08.
Stripping away the above non-operating items, PBT for 4Q09 was still up a
respectable 22.4% YoY at IDR476.4b, due to the positive impact of higher
selling prices achieved for crude palm oil (CPO) versus a year ago. Revenue
was down 8.5% YoY at IDR2.3t, with lower sales volume achieved for the
cooking oil and commodity divisions. However, higher selling prices for CPO
gave gross profit margins a boost, from 28% a year ago to 37.8% in 4Q09.

Stable fertiliser costs help "cap" costs. FY09's cost of production came in
at US$224/tonne. As IFAR had procured 1H10's supply of fertiliser, FY10
cost of production is likely to remain stable around US$220/tonne.

Raising CPO price assumptions and upping target price. We have upped our
FY10 CPO price assumption to RM2,250/tonne (from RM1,900/tonne) and
factored in contributions from IFAR's sugar business. For FY10, we estimate
that the sugar business would contribute approximately 5% of earnings.
While the outlook for the sugar business looks bright (Indonesia is
estimated to import 38.9% of its CY09 sugar consumption according to
Indocommercial, Agri), we believe IFAR would start reaping the full rewards
of its investment when it has achieved greater economies of scale (through
a more sizable planted area of 18,600ha by end FY11).

2.02? Let me counter the report.

Indofood Agri Resources Ltd (“IFAR”) reported that its FY2009 revenue
was 23.6% lower at Rp 9.04 trillion. Despite lower revenue, gross profit
margin increased from 34.9% in FY2008 to 35.7% in FY2009
• Strong growth potential back by expansion in sugar operations and
increase in global demand for palm oil, we maintained BUY with a target
price of S$2.51

Indofood Agri Resources, BUY S$2.40, Bloomberg: IFAR SP
1Q10 earnings in line
Price Target : S$ 2.75
By: Ben SANTOSO +65 6398 7976

At a Glance
· IndoAgri’s 1Q10 earnings were in line with our expectations

· Cooking oil and fats segment profit dropped by 87.7% y-o-y on higher CPO prices

· Buy rating and S$2.75 TP maintained

Comment on Results
The group reported 1Q10 net profit of Rp309.8b (+29% y-o-y and +8% q-o-q), representing 23% of our full year forecast - in line with our expectations. The group’s 1Q10 EBITDA also grew by 32% y-o-y to Rp672b, but was flat q-o-q. While revenues increased by 6% y-o-y to Rp2,111.6b, gross profit declined by 3% y-o-y.

Cooking oil and fats segment profit had dropped by 88% y-o-y to Rp14.9b; while commodity trading segment made Rp9.9b loss compared to Rp2.7b profit in the same period last year. EBITDA from cooking oil and fats also declined to Rp26b (2% margin) - down from Rp131b (10% margin) a year ago. In the year ending 31 March 2010, the group had increased cooking oil prices only by 5% (in Feb10), although CPO prices had risen by 13%. We believe this was mainly due to increased competition. In 1Q10, cooking oil and fats division accounts for c.4% of IndoAgri’s total. Plantations segment profit increased by 14% y-o-y to Rp491.4b - due largely to higher prices. CPO ASP was Rp6,597/kg (+13% y-o-y) - closely tracking that of spot. CPO sales volumes were down by 33% q-o-q and 9% y-o-y to 155k MT - in line with seasonally lower yields (slightly worse than expected due to heavy rains in South Sumatra).

Oil palm new planting was 1,702 ha - short of its targeted 25,000 ha for the full year (or 6.8%). The group is optimistic that it would achieve the higher end of 20k-25k ha range, as plantings should pick up in subsequent quarters.

Inflation and supply shortage send palm-oil plays higher

From The Edge Singapore Newspaper
Investing Ideas
As of 3 May, 2010

...There are other factors boosing crude palm oil (CPO) this year. "We are optimistic on commodities this year. Palm oil, particular is moving into shorage," say Nirgunan Tiruchelvam, an analysts at RBS. The stock-to-usage ratio,..., is likely to fall from 15% now to just 8% next year.

One obvious driver of the shorage in CPO supply has been weather conditions. The EL Nino effect, coupled with very high fertiliser prices on account of the financial crisis, lowered yields significantly towards the end of last year and should continue to take its toll this year.

At the same time, government moves in various countries are continuing to affect CPO prices. In China, for instance, soybean oil from Argentina, has just recently been banned. Tiruchelvam now expects Argentina to halt soybean crushing, which should drive stocks down and soybean oil prices up. Given that CPO prices move in tandem with soybean oil because they are close substitutes in food, cooking and biodiesel, he expects CPO prices to rise further. Meanwhile, in India, another major Asian economy, import tarfiffs on CPO have been lowered very significantly. So he sees India's consumption rising from here on.

Biodiesel is another major factor in supply-demand dynamics. The trend of using biodiesel as a more sustainable source of fuel is rapidly catching on. Malaysia, the world's 2nd largest CPO producer, intends to make it mandatory for vehicles to use CPO-blended biodiesel beginning June 2011. Goldman Sachs analyst Patrick Tiah notes in a recent report that several other countries such as Argentina and Brazil are also accelerating biodisel blends this year. "Coupled with higher oil prices, we estimate that the biodisel market could grow 28% in 2010," he says.

... Biodisel utilisation levels in Southeast Asia have risen 50% in a single quarter to a about 1/3 of total capacity. Tiruchelvam expects this to exceed 50% by 2011.

To ride the expected wave, CIMB's Malaysia based analyst Ivy Ng favours the Singapore planters. "They have good growth prospects, and their valuations are still lower than their regional peers," she says. There are 5 major palm-oil plays listed here, the most well known being Wilmar International. The others are Golden Agri-Resources, Indofoof Agri Resources, First Resources and Kencana Agri.

... Meanwhile, Tiruchlvam's top pick is IndoAgri. At a time when plantations throughout the region are experiencing lower levels of productivity, IndoAgri seems to be in a happy situation of rising productivity.
"We expect the planting cycle and the operational/logistical advances to help IndoAgri raise FY2010 production by 11%, at a time of industry stagflation," he says. "It has one of the highest ratios of immature to mature hectares in the induatry. So, its production should continue to grown above the market."

Oil Hits $60 for First Time Since Nov 2008

Oil prices hit $60 a barrel on Tuesday for the first time in six months, boosted partly by a weak dollar and gains on equity markets.

U.S. light, sweet crude [US@CL.1 59.78 1.28 (+2.19%)] was higher. It earlier touched $60.08 a barrel, its highest since November last year. It has risen about 20 percent this month.

London Brent crude [GB@IB.1 58.29 0.81 (+1.41%)] traded higher.

The U.S. dollar fell to a four-month low, helping oil, which is priced in dollars and tends to rise when the dollar falls. Gains in equity markets have also driven oil higher.

"Oil is riding the coat-tails of the equity market bounce for now, largely ignoring the build-up in oil inventories," said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

"Weakness in oil fundamentals is reflected in elevated inventories, yet the market's price assessment appears to have brushed this aside," Tchilinguirian said.

The global economic downturn has hit demand for oil, which has created a massive supply overhang. There is an estimated 100 million barrels of crude oil stored at sea on tankers. U.S. crude inventories are at their highest in 19 years.

But a rally in global equity markets this month in anticipation that the economic climate might improve has boosted oil despite its bearish supply/demand picture. The dollar has also played a part.

"The U.S. dollar is slightly weaker which could be spurring a bit of strength," said Tony Machacek at Bache Commodities Ltd.

Oil, which is priced in dollars, tends to rise when the dollar falls.

The global downturn has pushed oil down from a record high above $147 a barrel hit last July to a low in December of $32.40. Prices have rebounded this year.

U.S. crude is up more than 80 percent from a January low of $32.70 a barrel.

Crude oil demand in China, the world's second-largest energy user, provided support for prices with Chinese customs confirming on Tuesday that crude imports in April rose to reach the second-highest daily rate on record.

But the country's export data proved disappointing.

U.S. oil inventory data due on Wednesday is forecast to show a further rise in crude oil stocks.

U.S. crude stockpiles probably rose for the 10th straight time last week, up by 1.2 million barrels.

Distillate stocks are likely to have risen by 1.1 million and gasoline stocks by 500,000 barrels, a preliminary Reuters poll showed.