 Global crude update — Citi’s Global oil team has cut 2009E oil price assumption

from US$122.5/bbl to US$90/bbl; 2010E to US$90/bbl from US$100/bbl. Longterm

oil price forecast is still US$100/bbl. CPO and crude have a loose arbitrage

relationship. In essence, wholesale diesel prices are a direct pass-through from

crude prices (US$X/barrel of crude ≈ US$10.1X/ton of diesel).

from US$122.5/bbl to US$90/bbl; 2010E to US$90/bbl from US$100/bbl. Longterm

oil price forecast is still US$100/bbl. CPO and crude have a loose arbitrage

relationship. In essence, wholesale diesel prices are a direct pass-through from

crude prices (US$X/barrel of crude ≈ US$10.1X/ton of diesel).

 Downgrading 3-year forecast CPO price assumptions — In response to the

downgrade in crude oil price assumption, we are downgrading our CY08-10E CPO

price assumptions. Our revised CPO price assumptions are US$941/t, US$810/t

for FY09E and FY10E. The reduction in CPO price assumptions would result in

FY09E-FY11E earnings cuts of 6%-28% for Malaysian plantation stocks and 11%-

38% for the Indo planters.

downgrade in crude oil price assumption, we are downgrading our CY08-10E CPO

price assumptions. Our revised CPO price assumptions are US$941/t, US$810/t

for FY09E and FY10E. The reduction in CPO price assumptions would result in

FY09E-FY11E earnings cuts of 6%-28% for Malaysian plantation stocks and 11%-

38% for the Indo planters.

 Impact on target prices — For the Malaysian planters (DCF-based target price for

plantation business), we have lowered target prices by 13%-21% to factor in the

reduction in CPO price assumptions for the immediate 3-year forecasts and higher

average beta of 1.3x (for plantation stocks) versus 1.1x previously. For the

Indonesian companies, target prices (P/E based) have been cut by 18%-38%

following the downward revision in earnings.

plantation business), we have lowered target prices by 13%-21% to factor in the

reduction in CPO price assumptions for the immediate 3-year forecasts and higher

average beta of 1.3x (for plantation stocks) versus 1.1x previously. For the

Indonesian companies, target prices (P/E based) have been cut by 18%-38%

following the downward revision in earnings.

 Downtrend in biological yield cycle? — In the Aug MPOB statistics, we have seen

production momentum slowing to 2.5% versus double-digit growth in the first 7

months of the year. If we continue to see such trend in September, this could be

an indication of a downtrend in the biological yield cycle. Hence this would be a

positive catalyst for the sector as it could bring down inventory levels further.

production momentum slowing to 2.5% versus double-digit growth in the first 7

months of the year. If we continue to see such trend in September, this could be

an indication of a downtrend in the biological yield cycle. Hence this would be a

positive catalyst for the sector as it could bring down inventory levels further.

 Maintaining Buy ratings on all plantation companies — We remain fundamentally

positive on the outlook for CPO-plays. In the Malaysian plantation space, our top

pick is IOI Corporation and among the Indo planters, our top picks are First

Resources and London Sumatra.

positive on the outlook for CPO-plays. In the Malaysian plantation space, our top

pick is IOI Corporation and among the Indo planters, our top picks are First

Resources and London Sumatra.

 P/E multiples below historical averages — With the sharp decline in oil price and

CPO prices over the last 2½ months, P/E multiples are all now below historical

averages and trading at/close to trough valuation for some of the plantation stocks.

CPO prices over the last 2½ months, P/E multiples are all now below historical

averages and trading at/close to trough valuation for some of the plantation stocks.