Plantations - Hit by several speed bumps
We are cutting our average CPO price forecasts by 5-11% for 2014-16 to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia. The CPO price declines in 3Q14 were sharper than what we had previously expected, no thanks to stronger soybean supplies and weaker Chinese demand. These factors, coupled with the recent sharp drop in crude oil prices, are likely to put a lid on near-term CPO prices. We cut our EPS forecasts for regional planters by up to 41% to reflect our CPO price downgrade. This lowers our target prices by up to 23% across the board. But we have upgraded six stocks as their valuations have improved. Our sector rating remains Neutral, with First Resources as our key pick.
Nestle (Malaysia) - Better 3Q results
Nestle’s 9M14 earnings met consensus as well as our expectations at 76% of our full-year forecast. Although Nestle’s 9M net profit usually accounts for c.80% of its full-year, we deem the 9M14 performance in line as we expect easing raw material prices and lower A&P spend in 4Q14 to make up for the shortfall. 9M14’s topline was driven by domestic sales, but the bottom line was dragged down somewhat by 1H’s higher raw material costs and A&P expenses. We maintain our FY14-16 earnings forecasts, Add recommendation and DCF-based target price. As usual, no dividend was declared for the quarter. Key rerating catalysts include positive impact from cost pass-through and lower raw material prices.
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