By Carmen Lee
Tue, 6 Apr 2010, 08:21:01 SGT

Market Pulse: Commodities & Golden Agri (6 Apr 2010)

FOCUS

Commodities: M&As to drive growth

Summary: Mergers, acquisitions and joint ventures in the global commodities scene have heated up with US-listed Peabody Energy bidding for Australia-listed Macarthur Coal, potentially sparking a bidding war with Noble Group (Noble). Elsewhere, Rio Tinto and Chinalco have signed an MOU to form an iron ore joint venture in Africa. We have previously highlighted growth via consolidation as one of the key earnings drivers for commodities players in 2010, and expect to see more M&A activities as companies seek to grow inorganically along with the economic recovery. In view of this, we favour companies equipped with strong balance sheets and the financial flexibility to capitalise on inorganic growth opportunities that may arise. We remain OVERWEIGHT on the commodities sector and retain our BUY ratings on Noble [fair value estimate S$3.75] and Olam [fair value estimate S$3.36]. (Lee Wen Ching)

Golden Agri: Independent verification underway

Summary: PT Sinar Mas Agro Resources and Technology Tbk (SMART) – Golden Agri’s (GAR) Indonesian-listed subsidiary – has appointed Control Union Certification (CUC) and BSI Group (BSI) to conduct a thorough verification of the recent Greenpeace reports relating to sustainable palm oil production; these reports have resulted in Unilever and Nestle severing business ties with SMART. While the financial impact on GAR’s bottom line is minimal, management is aware of a potential blow to the group’s reputation as well as concerns over other companies doing the same to SMART; hence the need to appoint CUC and BSI to restore confidence. On the CPO front, the Indonesian government will raise its export tax on CPO from 3% to 4.5% for Apr; it has also raised the base price of CPO from US$708/ton to US$752/ton. And with demand for CPO expected to remain strong, buoyed by the faster economic growth in both China and India, we upgrade our base CPO assumption from US$720/ton to US$750/ton. In view of our revised CPO price assumption, our FY10 revenue and earnings estimates also improves by 3.6% and 4% respectively; we are also raising our fair value from S$0.66 to S$0.72, using a higher 17x multiple (vs. 16x previously) to reflect the more upbeat outlook. Maintain BUY. (Carey Wong)

For more information on the above, visit www.ocbcresearch.com for detailed report.

NEWS HEADLINES

- According to the latest Purchasing Managers’ Index, Singapore’s manufacturing activity expanded for the 11th month in a row.

- Securities market turnover on the SGX increased 35% YoY to 29.7b shares in March.

- The SGX has ordered China Milk to appoint a special auditor immediately.

- Roxy Pacific has taken a 20% stake in the consortium which recently signed a deal to buy Marina House at Shenton Way for S$148m.

- United Engineers has bought two industrial buildings at Ang Mo Kio for about S$25m.

- Lian Beng Group has clinched a S$95m contract to help design and build The Laurels at Cairnhill Road.

- Yongnam Holdings has won a sub-contract in India together with a local partner to construct a roof structure and columns for a new terminal building at the Mumbai International Airport.

- Debao Property Development is seeking a mainboard listing to raise about S$47.93m in net proceeds.