Why Wilmar is poised to fare better than peers amidst CPO woes

Pure upstream players are more in danger.

According to Phillip Securities Research, despite the weaker CPO production growth from Indonesia and favourable biodiesel blending mandates from both Malaysia and Indonesia, it believes CPO prices will remain muted in 2H13.

Phillip Securities Research like Wilmar for its positive long-term fundamentals as it remains a good proxy for the growing food demand in China and SEA.

Here's more:

We believe CPO prices will remain muted in 2H13 on (i) steady production growth from Malaysia, (ii) anticipated higher supply of global vegetable oil such as soybean and rapeseed oil, which are substitutes of palm oil, and (iii) weaker Indian Rupee against the US$, affecting demand from India, which is the largest importer of palm oil.

All these, coupled with the seasonally peak production period would cap any upside recovery on CPO prices in the 2nd half of the year.

We continue to like Wilmar for its positive long-term fundamentals as it remains a good proxy for the growing food demand in China and SEA.

In addition, being a supply chain manager, it will be less affected by low commodity prices as compared to pure upstream players. Golden Agri, having more than 90% of earnings coming from its upstream plantations, would continue to be affected by the weak CPO pricing.