Sigh of relief for plantation players,albeit temporary

PETALING JAYA:The recently passed plantations bill in Indonesia, which left out an earlier proposed clause to limit foreign ownership of Indonesian estates to 30%, gives temporary relief to most of Malaysian plantation players that have significant exposure there, said analysts.
The current cap on foreign ownership is now at 95%.
Although the Indonesian government can still impose limitations on foreign investment, PublicInvest Research believes it is highly unlikely to happen under newly elected President Joko Widodo as he was against foreign ownership limits in plantations in the recent statement.
The research house is maintaining its "neutral" view on the plantation sector, with a preference for Genting Plantations Bhd and Ta Ann Holdings Bhd.
"Big plantation players like Genting Plantations, IJM Plantations Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Bhd and TSH Resources Bhd would have been adversely affected if the Indonesian government had decided to cap foreign ownership," it added.
The approved bill also requires Indonesian plantation firms to allocate 20% of their concessions to local residents and orders the firms to help locals planting their own plantations. The companies would be given five years to comply with the new ruling.
Inter-Pacific Research said the 20% allocated concession for local residents is a long standing practice by foreign companies and does not pose a major new hiccup.
It expects incoming president Joko Widodo, who will assume office on October 20, to maintain his foreign investment policy as further limitation will deter foreign investment and hamper the country's growth prospects.
However, Inter-Pacific Research opined that foreign ownership risk is still present and will slow down merger and acquisition (M&A) activities in Indonesia.
Maybank Kim Eng Research, meanwhile, said if foreign limit is set too low, new plantings are expected to slow down in Indonesia but it helps to boost CPO prices in the long run.
It has maintained a "neutral" call on the plantation sector, with selective "buys" on TSH Resources, Ta Ann, Sarawak Oil Palms Bhd, Boustead Plantations Bhd and Sime Darby.
On another note, PublicInvest Research said a further extension in duty free exports could help reduce Malaysia's inventories but at the same time put pressure on Indonesia to consider similar measures. Exports of CPO for September and October were duty-free.
PublicInvest Research's full-year projections for CPO prices remain at RM2450 and RM2550 per metric tonne for 2014 and 2015 respectively.
The plantation index fell 33.06 points or 0.4% to 8328.30 points yesterday, with United Plantations Bhd as the top loser of the day to close at RM26.10, down 58 sen or 2.17% to RM26.10.


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