New York: 14:16 || London: 17:16 || Mumbai: 22:46 || Singapore: 01:16

Reports Malaysia

Malaysia stock market and companies daily report (March 06, 2014)

March 6, 2014, Thursday, 06:25 GMT | 02:25 EST | 11:55 IST | 14:25 SGT
Contributed by Shares Investment

El Nino Phenomenon Could Boost CPO Prices

- Industry observers predict crude palm oil (CPO) prices this year could touch the RM3,000 per tonne level, if not higher, as market watchers tracked effects of the recent dry spell and biodiesel demands.

- Reuters reported that palm oil futures are set to climb for a second year, driven by crop damaging from dry weather and Indonesia’s higher biodiesel mandate – Jakarta’s energy ministry has raised the minimum bio content in diesel to 10 percent, up from levels of 3 to 10 percent. For the power industry, the minimum has been doubled to 20 percent.

- However, analysts have warned that bumper global oilseed supplies and weak demand from key consumers could cap CPO price gains. They pointed out that at such high prices, demand could shift to rival edible oils of which there is ample supply. Last month’s rally in Malaysian CPO futures has tightened the spread between soybean and CPO, which could prompt buyers to opt for the latter.

Significance: Several traders is of the view that the key to CPO prices is the global supply and demand fundamentals. On the supply side, if rains come as normal in the next few weeks, CPO could trade between RM2,600 and RM2,900 over July to October, however if it stays dry, CPO prices will react and yields will decline in October to December this year and in the following two years.

Proton’s RM3b Request From Government Being Studied

- Datuk Seri Mustapa Mohamad, Minister for International Trade and Industry, has confirmed that Proton Holdings, which is a unit of DRB-Hicom, has approached the government for funding aid. He added that the request is currently being studied and it is still a work in progress.

- Proton is seeking new funding to execute its transformation plan that will see new models being developed, including an electric car. It has been reported that Proton has committed RM3.8 billion in investments until 2017 and needs more capital to be competitive and achieve its turnaround plan.

- Mustapa said companies in general were eligible for three types of incentives from the government – pioneer status, which gives companies tax incentives, a research and development grant, and incentives for training. He however added there are limitations as to whether incentives would be given depending on the government’s financial situation.

Significance: It was reported that Proton had first approached the International Trade and Industry Ministry last year for funding, but its request was rejected. The reason given was that Proton could not fully justify why it needed such funding from the government. It later approached Petronas, but was also not successful in raising the much needed cash from the national oil company.

Moody’s Maintains “Stable” Rating On Sime Darby

- Moody’s Investors Service held its “Stable” rating on Sime Darby despite the conglomerate reporting lower EBITDA of RM2.5 billion for 1H14 compared with an EBITDA of RM3.1 billion generated in 1H13. The rating agency said Sime Darby continues to show strong liquidity thus there is no impact on its A3 ratings.

- Moody’s said while 1H14 results reflect the ongoing pressure on the mining-related industrial division, the group’s dominant palm oil operations benefitted from higher crude palm oil (CPO) prices in the quarter. It added prospects for CPO are currently strong, with the abnormal weather impending supply while demand is boosted by mandates for blending biodiesel in Indonesia and Malaysia.

- However, Moody’s noted that its oil palm production figures have slowed faster than many of its peers. In terms of fresh fruit bunch, it has not reported a year-on-year increase in monthly production since February 2013.

Significance: The rating agency expects CPO to be the main driver for Sime Darby given that a sharp turnaround in the industrial and motors segments seems unlikely, while the other segments, although profitable, have limited impact on the group’s performance.