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We are optimistic about the long-term prospects of sugar as a commodity on account of structural global changes which include critical stock-to-use levels, the ban on GM sugar beets in the US, increasing ethanol consumption, the removal of subsidies by European Union and rising demand from China and India. Further, oil price trends will also influence the price of sugar as higher oil prices will impact the extent of cane diversion to ethanol. We believe these global structural pressures at play will underpin prices at least through 2012.
Lam Son Sugar accounts for c. 10% of the country’s total sugar supply. In 2010, running near full capacity LSS produced 76,000 tonnes of sugar from 702,000 tonnes of sugarcane input. We initiate coverage on one of Vietnam’s largest sugar producers, Lam Son Sugar (HSX: LSS), with an ADD recommendation and target price of VND39,600 per share.
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