PP 7767/09/2010(025354)

11 March 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

11 March 2010
Plantation
Recom : Overweight
Neutral Price Forecasts Amid Positive Monthly (Maintained)
Plantation Statistics

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
KLK Sep 17.02 19.50 97.8 125.1 38.1 28.0 17.4 13.6 3.1 14.0 2.9 OP
IOI Corp Jun 5.54 6.65 27.9 31.5 -13.0 13.0 19.9 17.6 4.0 17.4 2.2 OP
CBIP Dec 2.82 3.30 41.2 49.7 42.6 20.6 6.8 5.7 1.4 5.5 6.0 OP
Sime Darby Jun 8.82 9.85 40.7 51.6 8.5 26.8 21.7 17.1 2.4 15.6 2.5 OP
IJMP^ Mar 2.55 2.05 13.8 16.7 34.8 21.3 18.5 15.2 1.7 14.6 2.0 UP
Genting
Plantation # Dec 6.68 5.85 40.3 46.8 34.0 16.0 16.6 14.3 1.8 15.0 1.6 UP
Sector Avg 5.1 22.0 19.8 16.3
^ FY10-11 valuations refer to those of FY11-12 # Formerly known as Asiatic *Normalised

♦ Stock levels fall. As expected, Malaysia’s CPO production continued to Chart 1. CPO vs soyoil and rapeseed
fall in Feb 10 by 12.4% mom and 2.6% yoy. Exports also fell 11.6% mom oil prices
US$/tonne

but rose 2.7% yoy, resulting in lower closing CPO stock levels (-10.9% 1,700
CPO Soy Oil Rapeseed Oil

mom) to 1.78m tonnes. Stock/usage ratio fell back to 9.5% (from 9.8% 1,500

in Jan 10), nearing the 7-year average of 9.1% and is expected to 1,300

moderate further going forward. 1,100

♦
900

All neutral price forecasts, except one. The speakers on second day 700

of the 2010 POC proved to be more bearish than the first, with the 500

exception of one speaker, who had the most bullish forecast of all the 300

speakers in the conference. All but one of the price forecasts given were 100
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

relatively neutral, with only Chris deLavigne projecting prices to stretch to Chart 2. CPO vs crude oil prices
RM3,500/tonne in 2010 and 2011/12, although he expects volatility to be 160 1400

seen in both directions. We note that most of the price forecasts today 140 Correlation factor of
0.9x in 2007
1200

narrowed to 0.75x in

C P O s p o t p ri c e s (U S $ /to n n e )
(with the exception of Chris deLavigne) are in line with our forecasts.
C ru d e o i l p ri c e s (U S $ /b a rre l)

120
1H08, and rose again 1000
Correlation factor to 0.95x in 2H08.
100 started normalising to
0.7x from Dec-08, but 800

♦
rose again from Sep-

Five recent developments affecting the palm oil industry last month:
80
09 onwards to close
to 1x 600
60

(1) South American soybean crops still on track; 40

400

(2) Eight vegetable oil production forecasts; 20 200

(3) Supply problems for palm oil continue; 0 0

O l- 00

c 1

O c l- 02

O c l- 03

O l- 04

c 5

c 6

c 7

c 8

O c l- 09
r 0

r -0 1

r 2

r 3

r 4

r 5

r -0 6

r 7

r 8

r 9

0
J a t-0 0

J a t-0 1

J a t-0 2

J a t-0 3

J a t-0 4

J a t-0 5

J a t-0 6

J a t-0 7

J a t-0 8

J a t-0 9
J u-0 0

Ju 1

J u-0 2

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J u-0 5

Ju 6

J u-0 7

J u-0 8

J u-0 9
O l- 0

O l- 0

O l- 0

O l- 0

O l- 0

(4) Crude oil price on rising trend again; and

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

Ap n -0

n -1
c

c
Ja

Crude Oil (US$/barrel) CPO (US$/tonne)

(5) Further narrowing of discounts with soyoil and rapeseed oil.

♦ 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 and Investment Case. Despite the seemingly conflicting

views expressed by today’s speakers, most of the price forecasts given
were in line with our price view for the year. As such, we maintain our
average CPO price assumptions of RM2,500/tonne for 2010 and
RM2,700/tonne for 2011. We maintain our Overweight stance on the
sector as a whole and reiterate our recommendation for investors to stick
with the more liquid stocks given the anticipated volatile market
conditions in 2010. We maintain our Outperform recommendations on Hoe Lee Leng
IOIC, KLK, Sime Darby and CBIP, and Underperform (603) 92802184
hoe.lee.leng@rhb.com.my
recommendation on Genting Plantations and IJMP.

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 11 March 2010

Monthly Statistics

♦ Drop in production and stock levels... As expected, Malaysia’s CPO production continued to fall in Feb 10 by
12.4% mom and 2.6% yoy to 1.16m tonnes. Exports also fell 11.6% mom but rose 2.7% yoy to 1.29m tonnes,
while imports fell back 64% mom to 0.05m tonnes. As a result, closing CPO stock levels fell 10.9% mom to
1.78m tonnes in Feb 10 (from 2.0m tonnes in Jan 10), although on a yoy comparison, this was still 14% higher.
Most notably, the mom decline in exports was mainly to China (-20.3%), Japan (-21.3%), Pakistan (-43.3%) and
US (-28.9%); partially offset by an increase to Bangladesh (+269.0%), Benin (+25.4%), Egypt (+43.3%), India
(+19.5%), UAE (+247.5%) and the EU (+14.9%). The yoy increase in exports was mainly to China (+54.1%),
Bangladesh (>600%), Benin (+46.2%), UAE (+7.2%), US (+2.9%) and the EU (+39.9%); partially offset by a
decline to Egypt (-30.7%), India (-31.4%) and Pakistan (-14.0%).

♦ … leading to another fall in stock/usage ratios. As a result of the lower CPO stock levels, stock/usage ratio
fell back to 9.5% (from 9.8% in Jan 10), which is nearing the 7-year average of 9.1%. We expect this to
moderate further going forward as the weak seasonal production period continues and as exports pick up further
on an improved economic outlook.

Table 2: Monthly CPO Statistics

('000 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10
tonnes)
Opening
stocks 1,565.5 1,365.6 1,292.7 1,371.2 1,408.3 1,332.2 1,416.4 1,579.3 1,974.5 1,934.6 2,239.3 2,003.2

Imports 3.7 33.0 90.8 82.6 82.4 84.9 109.9 73.3 47.4 153.8 139.4 50.5

Productn 1,275.8 1,286.1 1,395.3 1,445.9 1,492.2 1,496.1 1,557.8 1,984.0 1,595.6 1,520.1 1,321.3 1,156.8
Total
supply 2,845.0 2,684.6 2,778.7 2,899.8 2,982.9 2,913.1 3,084.2 3,636.6 3,617.5 3,608.5 3,699.9 3,210.5

Exports 1,260.8 1,193.5 1,230.4 1,279.7 1,454.5 1,317.6 1,322.9 1,478.5 1,501.5 1,224.4 1,461.7 1,292.0
Domestic
use 218.6 198.4 177.0 211.7 196.2 179.1 182.0 183.6 181.4 144.9 235.0 133.2
Total
offtake 1,479.4 1,391.9 1,407.5 1,491.4 1,650.7 1,496.7 1,504.9 1,662.1 1,682.9 1,369.2 1,696.8 1,425.2
End mth
stocks 1,365.6 1,292.7 1,371.2 1,408.3 1,332.2 1,416.4 1,579.3 1,974.5 1,934.6 2,239.3 2,003.2 1,785.2

Productn
YTD 3,793.4 5,079.5 6,474.7 7,920.7 9,412.9 10,909.0 12,466.7 14,450.8 16,046.3 17,566.4 1,321.3 2,478.1
Mom (%)
7.4 0.8 8.5 3.6 3.2 0.3 4.1 27.4 (19.6) (4.7) (13.1) (12.4)
YoY (%)
(1.5) (3.1) (4.3) (1.6) (4.4) (6.5) (1.4) 20.1 (3.8) 2.5 (0.7) (2.6)
YTD (%)
(3.9) (3.7) (3.8) (3.4) (3.6) (4.0) (3.7) (1.0) (1.3) (1.0) (0.7) (1.6)

Exports
YTD 3,872.0 5,065.5 6,296.0 7,575.7 9,030.2 10,347.8 11,670.7 13,149.2 14,650.7 15,875.0 1,461.7 2,753.7
Mom (%)
0.3 (5.3) 3.1 4.0 13.7 (9.4) 0.4 11.8 1.6 (18.5) 19.4 (11.6)
YoY (%)
1.2 (5.2) 2.5 14.2 3.7 (10.2) 2.0 10.7 10.2 (24.2) 8.0 2.7
YTD (%)
15.6 9.9 8.4 9.3 8.4 5.6 5.2 5.8 6.2 3.0 8.0 5.5

Stocks
Mom (%)
(12.8) (5.3) 6.1 2.7 (5.4) 6.3 11.5 25.0 (2.0) 15.7 (10.5) (10.9)
YoY (%)
(25.2) (27.8) (28.3) (30.8) (32.6) (23.4) (19.1) (5.6) (14.6) 12.3 9.3 14.0

Source: MPOB, RHBRI

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 11 March 2010
Notes From Palm Oil Conference

♦ All neutral price forecasts, except one. The speakers on second day of the 2010 POC (Palm and Lauric Oils
Conference) proved to be more bearish than the first, with the exception of one speaker, who had the most
bullish forecast of all the speakers in the conference. Price forecasts given by five speakers today, including Mr
Harald Sauthoff from Cognis GmBH, Mr. Chris de Lavigne from Frost & Sullivan, Mr Ambono Janurianto from PT
Bakrie Sumatera Plantations, Dr James Fry from LMC International and Mr Thomas Mielke from Oil World. All but
one of the price forecasts given were relatively neutral, with only Chris deLavigne projecting prices to stretch to
RM3,500/tonne in 2010 and 2011/12, although he expects volatility to be seen in both directions. We note that
most of the price forecasts today (with the exception of Chris deLavigne) are in line with our forecasts.

♦ Price forecasts summarised. The summary of the price forecasts are in Table 2 below:

Table 2: CPO Price Forecasts From Industry Experts For 2010 Overall View

Harald Sauthoff RM2,400-2,800/tonne, with an average of Neutral with bearish

Vice President, Cognis GmBH RM2,600/tonne for CY2010 undertone

Chris deLavigne No specific forecast for the year. Bullish

Asian Director, Frost & Sullivan Projects CPO prices to get back to RM3,500/tonne quicker
than expected in 2010 and especially in 2011/12
Expects volatility to continue.

Ambono Janurianto RM2,400-2,800/tonne Neutral

President Director, PT Bakrie Sumatra Plantations

Dr. James Fry No specific price forecast, but expects prices to fall after Neutral with bearish
Chairman, LMC International Ltd seasonal peak in 2HCY2010 undertone
If crude oil @ US$78/barrel, CPO @ RM2,600/tonne
If crude oil @ US$71/barrel, CPO @ RM2,450/tonne

Thomas Mielke RM2,400-2,900/tonne, with an average of Neutral

Executive Director, Oil World RM2,550/tonne for CY2010

Source: POC 2009 Handouts, RHBRI

♦ Two different analytical styles. Today’s speakers seemed to have two different styles of analysis, focusing on:
(1) the basic fundamental factors affecting vegetable oils based on demand and supply prospects; and (2) the
global economic scenario and the relationship between vegetable oils and mineral oils. Thomas Mielke of Oil
World and Ambono Janurianto of Bakrie Sumatra focused more on the basic fundamental factors affecting
vegetable oils, while Harald Sauthoff of Cognis, Chris deLavigne of Frost & Sullivan and Dr. James Fry of LMC
International focused more on the global economic scenario and the relationship between vegetable and mineral
oils.

♦ Fundamental analysis based on vegetable oil S&D prospects… The two speakers here focused very much
on supply and demand scenarios of vegetable oils, in particular palm oil. Mr Thomas Mielke believes that while
demand and supply fundamentals of CPO remain strong, CPO prices could be close to the peak at current levels
unless new bullish factors materialise in the form of abnormal weather impacts resulting in supply constraints.
This however, does not mean that Mr Mielke believes there is downside potential for prices, as he expects current
CPO prices to be well supported and to trade in a narrow price band of RM2,400-2,900/tonne for CY2010. His
analysis is based on the expectation that the stock/usage ratio of the world’s 17 oils and fats will continue to fall
for the second year in a row to 10% in Aug/Sept 2010 (from 11% in 2009), as consumption is expected to rise by
6.5m tonnes versus production of 5.9m tonnes. Demand growth is expected to come from both food (60%) and
non-food (40%) industries and there is expected to be a rising dependence on palm oil, given that exports of
soya oil, rapeseed oil and sunflower oil are shrinking. In the longer term, Mr Mielke remains bullish on CPO’s
prospects, and projects that CPO production would need to rise by a CAGR of 12-13% p.a. in the next five years
to 2015 to meet demand, as production of soybean oil falls by a similar amount.

♦ … resulting in neutral short-term price forecasts, but positive long-term outlook. Mr Ambani Janurianto
also believes the future prospects of CPO remain bullish, especially in view of Indonesia’s regulations which
include: (1) a scaled CPO export tax regime based on prices; (2) a limitation on CPO exports of 50% by 2015 and
30% by 2020 to promote domestic downstream processing; (3) a territorial landscape plan which only allows
growth of plantation area of 200,000ha/year from 2009 onwards (from 300,000ha/year); (4) a biodiesel mandate
of 2.5-3% in 2010, rising to 5-7% in 2015, 10% in 2020 and 20% in 2025; and (5) a biodiesel subsidy of

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 11 March 2010
US$120/tonne which started in Jan 2009. With these regulations in place and assuming they are adhered to,
Indonesia may not necessarily see huge significant increases in CPO exports in the coming years, thus resulting in
stronger CPO prices in the longer term. For 2010 however, Mr Janurianto expects CPO prices to range between
RM2,400-2,800/tonne.

♦ Analysis based on global economic outlook which governs commodities prices… Mr Harald Sauthoff and
Dr. James Fry both believe that the global economy could be facing a double-dip situation currently, especially
when the stimulus packages are completed and/or withdrawn and governments start tightening their budgets. In
this scenario, the US$ would start strengthening again and commodity prices will soon be affected and in Dr Fry’s
view, this may happen within the next 6-12 months. Both Mr Sauthoff and Dr Fry believe that current vegetable
oil prices are too high to begin with, based on their expectations of crude oil prices and the relationship between
crude and mineral oil prices. Although both speakers gave fairly neutral CPO price forecasts for the year, of
RM2,400-2,800/tonne for Mr Sauthoff and RM2,450-2,600/tonne for Dr Fry (depending on where crude oil prices
are), the longer-term outlooks expressed have more bearish undertones, based on their expectations for a
slower-than-expected global economic recovery.

♦ … resulting in two very different price forecasts. Although Mr Chris deLavigne is in agreement with Mr
Sauthoff and Dr Fry that the current global economy and commodity markets have been propped up by
government money over the last six months, he believes that the US$ would not strengthen, but start to weaken
again on the back of another bursting of an asset bubble. He believes this could happen as early as June/July
2010 and continue through to 2011, thereby resulting in commodity prices rising again on the back of both
fundamental and financial demand. While he believes that the fundamental demand for vegetable oils will
continue to grow, especially with biofuel policies in place, he believes that financial/speculation demand could also
be higher than expected. As such, Mr deLavigne expects the choppy historical crude oil and vegetable oil prices
seen in 2007/8 to repeat itself with prices expected to rise especially in 2011/2012, projecting that CPO prices
could get back to RM3,500/tonne sooner than expected.

Recent Developments

♦ Five recent developments. Over the recent month, there have been five main developments affecting the palm
oil industry which we would like to highlight, including:

(1) South American soybean crops still on track;

(2) Eight vegetable oil production forecasts;

(3) Supply problems for palm oil continue;

(5) Crude oil price on rising trend again; and

(6) Further narrowing of discounts with soyoil and rapeseed oil.

(1) South American soybean crops still on track - Neutral

⇒ South America’s record soybean crop started coming into the market in Feb 2010 already, with high exports
coming out from Brazil, while Argentinean exports are expected to start rising from April 2010 onwards. Despite
widespread infestation of the Asian rust fungus and other diseases, Oil World continues to expect South America’s
soybean production to rise by 32.3% yoy to 128.8m tonnes in 2010, due to higher harvested soybean area and
the impact of rainfall received in Dec/Feb 2009/10. As mentioned in our previous report dated 11 Feb 2010, we
are not too worried about the large upcoming soybean crop, given that a significant share of this increase would
be earmarked for biodiesel production in South America and will not be available on the soya oil export market.
In addition, we highlight the increasing risk of a strike of Argentine farmers, as one of the major farmer unions is
reportedly pushing for a general strike in an effort to change government agricultural policy to liberalise wheat
exports and reduce export taxes on soybeans and other commodities.

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 11 March 2010
(2) 8 vegetable oil production forecasts – Positive

⇒ Oil World’s latest projection is for global soybean production to rise 19.6% yoy in 2010 to 253.8m tonnes, while
global soybean crushings are set to increase by 8.7% yoy to 108.7m tonnes. However, as crushings of other
oilseeds like sunflowerseed (-14.8% yoy) and cottonseed (-7.7% yoy), amongst others, are declining, total global
oilseed crushings are only expected to rise by 3.9% yoy in 2010. In addition, as the bulk of the increase in
oilseed crushing comes from soybeans, whose oil content is low (at only 18-19%) versus that of sunflower seed
and rapeseed (at about 40%), global production of the 8 major vegetable oils is also only expected to rise by
4.2% yoy in 2010, versus demand growth of 4.7%. This is expected to result in a 3.8% yoy decline of the 8
vegetable oil stocks to 14.4m tonnes in 2010, which would bring global stock/usage ratio into a third consecutive
year of decline to 10.5% in Oct/Sept 2010 from 11.4% in 2009.

Chart 3: Global 8 Veg Oils Stock/Usage Ratio

140 12.4%
130 12.2%
120 12.0%
110
11.8%

Stock/usage ratio (%)

Usage ('000 tonnes)

100
90 11.6%
80 11.4%
70 11.2%
60 11.0%
50 10.8%
40
10.6%
30
20 10.4%
10 10.2%
0 10.0%
2005 2006 2007 2008 2009 2010F

Disappearance Stocks/Usage Ratio

Source: Oil World, RHBRI

⇒ We expect demand for vegetable oils to be driven by continued demand from India and China, as well as from
biofuels for the expanding energy markets in Europe, South America and globally. In India, the government kept
import duties unchanged at nil on crude vegetable oils and at 7.5% on refined oils in the budget for 2010/11
presented on Feb 26, in order to keep a check on food inflation, which has risen by 17-18% in recent weeks. In
China, imports of major commodities continue to rise rapidly due to insufficient domestic production and a
continuous decline in the available agricultural areas. Case in point is the increase in China’s imports which was
seen in Jan 2010, where palm oil imports rose 58.2% yoy and soybeans imports rose 34.5% yoy.

(3) Supply problems for palm oil continue - Positive

⇒ For palm oil specifically, supply problems will continue to dominate, particularly in Malaysia, due to: the biological
yield cycle causing tree stress; higher replanting activities over the last two years; impact of labour shortages
especially during the peak production season which could result in reduced productivity; and the potential impact
of El Niño. We note that this is already seen in some of the production statistics of the companies we cover, like
IOIC, whose total FFB production in Jan and Feb 2010 is down 5.8% yoy; or Sime Darby, whose Jan 2010 FFB
production is down 6% yoy; and IJMP, whose Feb 2010 FFB production is down 1.5% yoy. Oil World expects
global dependence on CPO to rise, account for about 43% of the prospective demand increase of the 8 major
vegetable oils in 2010, as global consumption of CPO is projected to grow faster than global production. We
estimate this would result in a third consecutive year of decline in stock/usage ratio for CPO to 14.2% (implying
less than two months usage), from 15.6% in Sept-2009 and 17.1% in Sept-2008.

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 11 March 2010

Chart 4: Global CPO Stock/Usage Ratio Scenario Analysis

51,000 31%
48,000 29%
45,000
26%
42,000
39,000 24%
22%
Production ('000 tonnes)

36,000

Stock/Usage ratio (%)

33,000 20%
30,000 18%
27,000
15%
24,000
21,000 13%
18,000 11%
15,000 9%
12,000 7%
9,000
4%
6,000
3,000 2%
- 0%

F
87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09
10
19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20
20
Production Stock/Usage Ratio Assuming Ave Demand Gth
Stock/Usage Ratio Assuming Oil World Demand Gth Stock/Usage Ratio Assuming Minimum Demand Gth
Stock/Usage Ratio Assuming Maximum Demand Gth

Source: Oil World, RHBRI

(4) Crude oil price on rising trend again – positive

⇒ Crude oil prices continue to remain volatile, with prices fluctuating between US$70-85/barrel within a tight time
frame of one month (Chart 2). At last close, crude oil prices were about US$81.50/barrel, about 6.6% above the
average price achieved in Feb 2010 of US$76.45/barrel. Nevertheless, we maintain our view that the medium to
long-term price trend is still an upward one, given our expectations of a depreciation of the US$ to close at
RM3.30/US$ (from RM3.44/US$ currently) at end-2010 and RM3.25/US$ at end-2011, and our oil and gas sector
team’s crude oil price forecast of US$80-100/barrel for 2010 and US$100-120 for 2011. In addition, we believe
financial demand, which is picking up again in the crude palm oil futures market, as investor risk appetites
increase, would continue to play a part in governing CPO price movements. Based on these projections, and
assuming the correlation between crude oil price goes back to the highly correlated 0.9x CPO average, we
estimate this would result in CPO prices ranging between RM2,215-2,769/tonne for 2010 and RM2,769-
3,323/tonne for 2011.

(5) Further narrowing of discounts with soyoil and rapeseed oil - positive

⇒ As expected, the discount between CPO and soyoil continues to narrow, and is now at US$122/tonne (from
US$158/tonne last month and versus historical average of US$100/tonne), while the discount between CPO and
rapeseed oil has fallen to US$128/tonne (from US$138/tonne last month and versus historical average of
US$200/tonne) (see Chart 1).

⇒ Going forward, in the short term, if the South American crops turn out as expected, this would likely see soybean
product prices continue to fall, thereby reducing the discount between CPO and soyoil further toward historical
discount levels, while rapeseed oil prices are expected to remain fairly stable at current levels. However, this
trend may reverse if any bad news regarding the South American crops surfaces.

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 11 March 2010
Forecasts

♦ CPO price forecasts maintained. Despite the seemingly conflicting views expressed by today’s speakers, most
of the price forecasts given were in line with our price view for the year. As such, we maintain our average CPO
price assumptions of RM2,500/tonne for 2010 and RM2,700/tonne for 2011. YTD average spot prices of CPO of
approximately RM2,550/tonne is in line with our projections, which assumes stronger CPO prices in the first half
of the year versus the second half, following the CPO production cycle. We believe fundamental factors like the
current seasonally weak CPO production output, the impact of higher replanting activities in Malaysia over the last
two years, the impact of current weather abnormalities, the start of implementation of biofuel policies in many
countries in 2010 and the continuation of favourable trade tariffs, will continue to support stronger CPO prices in
the near term, while financial demand will continue to be one of the factors governing CPO and crude oil price
movements in the medium term.

Risks

♦ Main risks include: (1) a significant change in crude oil price trend resulting in significant movement of CPO
and other vegetable oils prices; (2) weather abnormalities resulting in an over- or under-supply of vegetable
oils; (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, resulting in a higher- or lower-than-expected growth in demand for
vegetable oils.

Valuations and Recommendations

♦ Overweight stance on sector maintained. We maintain our Overweight stance on the sector as a whole
and reiterate our recommendation for investors to stick with the more liquid stocks given the anticipated
volatile market conditions in 2010. We maintain our Outperform recommendations on IOIC, KLK, Sime
Darby and CBIP, and Underperform recommendation on Genting Plantations and IJMP (see Table 3).

Table 3. Valuation Bases

Fair Value
Company (RM/share) Valuation Methodology

Genting 5.85 Target 14.5x PER CY10 earnings.

Plantations
CBIP 3.30 Target PER of 8x CY10 for the oil mill engineering division and 12x CY10 for the plantation division.

IJMP 2.05 Target 14.5x 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 19.50 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 4: 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

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 11 March 2010
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
Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.
The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may
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.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
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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

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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