HDBSVR: Plantation, Maintian Overweight

Plantation sector: Cut in CPO price assumptions

-US planting more soybean this year. We lowered our 2009 and 2010 CPO price forecasts to RM2,610/MT and RM2,525/MT from RM2,800/MT and RM2,650/MT, respectively, to take into account this year's planting intentions as indicated in the US Department of Agriculture (USDA) survey released on 31 March. The report indicated an 18% jump (c.4.6m hectares) in soybean planting intentions by US farmers this spring, citing higher soybean prices, lower input costs relative to corn, and crop rotation considerations for corn as their main motivations.

-Near term volatility anticipated. Despite the cuts in our assumptions, CPO prices are still higher than historical levels. And the conditions that have supported prices up to this point will remain in place for some time. However, CPO prices may have some more room for correction (on relative pricing to rapeseed oil), so we expect the commodity to see some price volatility in the near term. Over the next two years, average CPO price should remain sustainable at the RM2,500 to RM2,600 range.