Golden Agriculture: Toppish.

On 1 Nov, I asked "Would the rising 20dMA be able to push the price higher? My suspicion is that sellers would turn out in force if price moves closer to 70c as it is a thrice tested resistance in recent memory.  Therefore, 70c remains the resistance to watch."  That resistance was breached on 3 Nov, the second time in 7 sessions. It suggested that 70c was no longer as strong a resistance as before.  However, closing at 70c means that it was still the resistance to watch. With the 20dMA still rising, immediate support moved higher to 66c from 65c.

Although volume improved, the picture of a negative divergence between price and volume was still obvious. The MFI and RSI were both descending and suggested that they could go lower to retest their respective uptrend supports. Momentum was weakening. The long upper wick on the white candle suggested some selling pressure beyond 70c.

On 4 Nov, the following session, this counter traded the whole day at 70c or higher. Closing at 70c seems to have confirmed it as the new support. The very low volume suggested a wait and see attitude ahead of the long weekend. Could we be seeing the formation of a rising wedge? This pattern could be valid if volume keeps decreasing which seems to be the case thus far and the downside target would be 61c.

With improving CPO price now a reality, it seems less risky loading up on CPO counters and that is precisely what market participants have done. Loading up on a pullback would be the prudent thing to do, however.

Palm oil plays rise again; CPO price catalyst 
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
Golden Agriculture: Up or down?

LMIR: Foreign exchange forward contracts.

LMIR reported stronger earnings for 3QFY2010. Distributable income at $11.7 million. DPU at 1.09c is higher than the 1.04c in the last quarter. This represents a marginal increase of 4.8% over the previous quarter despite revenue increasing 53% year on year. LMIR also managed to have rate increase in rental renewals to the tune of 16%! Indonesia is doing well, as I expected.

Unfortunately, the management lost $2.9m in foreign exchange forward contracts. Without these contracts, the distributable income would increase by 24%! A DPU of 1.35c for an annualised DPU of 5.4c? Now, that would be in line with its actual performance on the ground!

The management is singing the old tune that these contracts are a prudent measure to protect its income denominated in the Indonesian Rupiah. The very strong Rupiah has caused it to lose money quarter after quarter on these contracts. Who is making money, I wonder?

What do they expect from an economy that actually weathered the last financial crisis unscathed? Indonesia was one of only three Asian economies that did not go into a recession, the other two being China and India! These contracts should have been reduced significantly in the last three quarters! I have wondered on various occasions why the CFOs of LMIR could never last very long. Did they go against the idea of having foreign exchange forward contracts? I keep wondering.

Having said this, the REIT remains a relatively safe investment that should generate consistent income for unitholders although its inability to deliver significantly higher DPU is galling, given such impressive growth in revenue.

Lippo-Mapletree Indonesia Retail Trust achieves higher 3Q distributable income of $11.7m. In 3Q 2010, there was a realised loss on foreign exchange forward contracts of $2.9 million as the cross currency swap remained “out of the money”, compared to 3Q 2009 when a realised loss of $0.4 million was recorded as the IDR was weaker at that time.
Wednesday, 03 November 2010

© 2010 - The Edge Singapore

Related post:
LMIR: DPU reduced 20%.