Morgan Stanley says market “now accepts that the 2H10 CPO production recovery will be weak, but may underestimate the persistent weakness in 1H11, which in our view will be followed by a supply rebound in 2H11.”
Raises CPO price estimates; tips 2010/2011/2012 CPO price (CIF) at US$885/US$990/US$980 per tonne, average 9.0% above previous numbers, which to drive higher upstream earnings forecasts.
Keeps Golden Agri-Resources (E5H.SG), Overweight, raises target to $0.85 vs $0.72, as top pick; “unlike before, we are now only a few percent above consensus EPS for most upstream names, except for GGR, where we are still 14% above for 2011-2012E.”
Adds, with 1H11 CPO supplies looking tighter vs 2H11, stocks could overshoot price targets; highlights Indofood Agri (5JS.SG) as another stock with strong upstream fundamentals, keeps Equalweight, ups target to $2.80 vs $2.30. Golden Agri +1.3% at $0.76, Indofood of 0.7% at $2.83.