Upping CPO price forecasts. In this report card on the recent results season, we are raising our CPO price (cif) forecasts by 18% for 2009 and 8% for 2010 to US$710 per tonne for both years. The reasons for our upgrades are Argentina’s lower soybean crops, the slower decline in demand growth from key consumers and a slower-than-expected recovery in palm oil output. Our new local CPO price forecasts are RM2,280 for 2009 and RM2,250 for 2010.

CPO price to pull back in 3Q before recovering in 4Q. We remain positive about CPO price until end-2Q as the replenishment of stocks will require time, India’s import duties on edible oils remain at zero and there is concern over the delay in plantings in US. We expect CPO price to pull back in 3Q before recovering towards the end of the year.

Upgrading earnings forecasts and target prices. In view of our higher CPO price forecasts and recent changes in our rupiah assumptions, we are raising our FY09-10 earnings forecasts for all the planters in our coverage by up to 30%. This, along with higher target P/Es following our upgrade of regional stockmarkets, bumps up our target prices by 3-53%. We are raising Hap Seng Plantations and Sampoerna Agro to Neutral given their recent underperformance.

Upgrading Malaysian plantation sector to Neutral. We are raising our rating for the Malaysian plantation sector from Underweight to Neutral as its valuation premium over regional peers has narrowed following its recent underperformance, selected plantations stocks will benefit from an increase in their weightings in the new FBM30 indices on 6 July 2009, we are more bullish on the Malaysian stock market and foreign shareholding levels have fallen.

Staying NEUTRAL on regional plantation sector. Despite our CPO price upgrade, we remain NEUTRAL on the regional plantation sector as the share prices of most planters in our universe have done well YTD, reflecting the more upbeat CPO price outlook and expectations of a correction of CPO price in 3Q due to seasonally higher production and potential cutbacks in demand from major consuming countries if crop prospects improve. There is also no change to our Overweight rating on the Singapore plantation sector and Neutral call on the Indonesian plantation sector. For exposure to the regional plantation sector, we continue to recommend large-cap liquid planters. Our top picks in the region are Wilmar, Sime Darby, Indofood Agri and London Sumatra.