PETALING JAYA: The KL Composite Index (KLCI) yesterday dropped to the lowest since end-2006, dragged down by plantation stocks’ steep declines on worries that rising cost and softening crude palm oil (CPO) prices would limit planters’ profit growth.
Top loser Kuala Lumpur Kepong Bhd’s share price tumbled RM1.40, or 9.2%, to RM13.90 – its worst level since October last year. Bigger rival IOI Corp Bhd was down 50 sen, or 8.2%, to a 10-month low of RM5.60 in active trade.
“For the first time in three years, we are turning negative on the plantation sector,” CIMB Research said in an update to clients early yesterday.
“Given the rising regulatory risk and slowing earnings momentum, we can no longer justify the large P/E premium on the sector and downgrade it from ‘overweight’ to ‘underweight’.”
The firm slashed profit outlook for plantation stocks under its coverage by as much as 20% and cut target prices by as much as 39% to account for higher operating cost and changes in windfall tax.
The KLCI closed down 16.13 points, or 1.4%, to 1,105.04 on turnover of 350 million shares worth RM995mil. Losing stocks outnumbered risers two to one.
CPO contract for October delivery fell RM43 to RM3,392 per tonne on Bursa Derivatives yesterday. The benchmark price was up 11.1% year-to-date, but had scaled back 24% from its peak of RM4,486 per tonne on March 4.
Other smaller plantation firms were also hit hard yesterday. Shares in IJM Plantations Bhd plunged 31 sen to RM2.93, Asiatic Development Bhd eased 45 sen to RM6.30, while Kulim (M) Bhd dropped 45 sen to RM9.
Planters’ earnings worries added to the growing list of uncertainties faced by investors that had kept them away from investing in equities in recent months.
“People are going to look for further evidence of weakening growth as the second-quarter earnings season gets under way,” a fund manager said.
On Thursday, Bursa Malaysia Bhd released a weak set of results for the three months ended June 30 and warned of tougher times ahead as trading volume dwindled.
Meanwhile, brokers noted that regional markets were also down yesterday on earnings woes.
Disappointing quarterly results by Google, Microsoft Corp and Merrill Lynch & Co snuffed out early hopes that Asian stocks would head north yesterday on the back of Wall Street’s 200-point advance overnight.
The results were released after US trading hours on Thursday.
All Asian stock markets fell yesterday, except those in China, India, New Zealand and Pakistan.
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