Maybank IB Views

Petronas Chemicals Group Berhad :

Samuel Lee has upgraded his PT on Petronas Chemicals Group (PCG) to RM7.80 from RM6.80 previously. PCG is his top pick in the region and he continues to like the company for its earnings outlook especially in the high crude oil price environment. PCG is also one of the few petrochemical companies with volume expansion in 2011.

He has raised his earnings by 18% and 28% for FY11E and FY12E to reflect:
1) Higher PX and MEG spreads expected in 2011 due to higher cotton prices;
2) Higher Fertiliser & Methanol product prices on the back of stronger fertiliser demand and positive agricultural sector outlook;
3) Higher Naphtha price assumption which will lift product prices and spreads; and
4) Accelerating associate Income growth mainly from its 40% owned BASF/Petronas JV.

Further upside risk to our FY10-12 EPS CAGR of 20% is likely given :
1) our current PX-Naphtha spread assumption which remains below the YTD average of $700/ton;
2) higher utilisation as the company is targeting 90% consolidated operating rate vs 81.3% achieved during 9MFY11;
3) higher volumes if production at its Methanol 1 plant is ramped up faster than expected

JPM's Dec 2012 PT of RM7.80 is based on 2.5X FY12E P/B, which is at a 10% premium to regional peers.
Plantation :

Just to highlight that the Bursa Palm Oil Conference will held in KL for the next two days (8th-9th March). As with previous years, I expect CPO prices to be relatively firm as the market watches out for guidance from industry experts such Dorab Mistry, James Fry and Thomas Mielke.

Just to remind you of our view on CPO. We are positive on CPO prices in the 1H11 with CPO prices expected to peak in the 1Q11. We are cautious on outlook in the 2H11 given expectations of a production pick up and weakening CPO prices as a result. CPO price discount to soy-oil has widened to US$100/t from US$20/t in Jan-11 vs historical mean discount of US$160/t. Our CPO forecast for 2011E is RM3,400/t and for 2012E is RM3,200/t.

Our only OW call in the sector is Sime Darby Our positive view on SIME is NOT driven by stronger CPO prices BUT because of :
1) very low hanging fruits in the plantation division;
2) extremely low expectations by investors. Therefore, if they are able to meet consensus forecasts, analysts will need to upgrade their estimates;
3) oil and gas is no longer a drag after the provision;
4) it is at quite a sweet spot. Besides plantation, each of its other business segments including motor, heavy equipment and property are expected to perform better.

JPM's PT of RM11.00 offers an upside of 20%.