Plantation is due for rerating

I can see the bull charging from the plantation

The general tone of the recent Palm Oil Conference (POC) 2014 was bullish. Many speakers highlighted biodiesel demand and weather issues as the main drivers of CPO price’s current rally. Most of them believe there is still upside potential for CPO prices, with projections of prices reaching MYR3,000/ton before end of 2014.

The palm oil price chart below shows that palm oil price is on an definite uptrend in the last 6 months. The important question is whether the price uptrend is sustainable in the near future.

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I also have read several reports from RHB Institute Research Analyst Alvin Tai, Kenanga Research Analyst Alan Lim, Public Invest Research Sector Analyst Chong Hoe Leong and Hwang DBS Vicker Research. All of them agree that the palm oil price uptrend is sustainable for the near future and they all are bullish on plantation sector.

In fact, CPO price traded at Rm 2,700 per ton a few days ago. This is the highest crude palm oil price in the last 18 months.


The average CPO price for last year was about Rm 2,250 per ton. As a result almost all plantation shares prices are depressed due to poor earning. In view of the CPO price increase for this year, all plantation companies will make additional profit for no extra effort, money for doing nothing.

The 1st quarter result ending March 2014 for plantation companies will definitely show profit increase which will be a strong catalyst to push up share price. All companies will have to announce their quarterly result within 2 months which will be before end of this month.  This time will prove me right!

As I said before, I am not an accountant and I can hardly understand all the accounting ratios, cash flow and other economic issues. But I can recognize opportunities to make money from the stock market and this one is glaring at my face. I am a trader and I am always on the lookout for cheap undervalued shares.

Almost all plantation shares have been depressed due to the poor CPO price. I cannot see any reason why plantation shares remained depressed any longer. Some of them are selling cheaper than their average price for last year. Why can’t investors see this opportunity to make money?

Felda Global Ventures has recently paid more than Rm 70,000 cash per ha of oil palm estate in Sabah. Boustead also paid Rm 70,000 per ha about one year ago.

Basing on Rm 70,000 per ha, TH Plantation, Kulim and Sarawak Plantations are the most undervalued shares with tremendous profit growth prospect as shown below:

Name       issued shares     Current price     Market capitalization      Planted area    Market Cap per ha

TH Plant     877 million        Rm 2.10             Rm 1,840 million             66,900 ha             Rm 27,500

Kulim        1,290 m               Rm 3.55             Rm 4580 m                      132,000 ha            Rm 34,500

Sarawak Plant 280 m           Rm 2.45            Rm 686 m                         30,100 ha             Rm 22,800

Jaya Tiasa   973 m                Rm 2.70             Rm 2627 m                       62,500 ha            Rm 42,000

SOP             437 m                    Rm 6.50             Rm 2840 m                    63,000ha             Rm 45,000

Please note that JT also has plywood and logging businesses. SOP also has refinery, shipping and a small property development business.

Basing on the same method of valuation the market cap per ha for plantation favourites like KLK, IOI and UP would be more than Rm 100,000 per ha but they all, except UP, have many other businesses beside plantation.  In any case, I do not buy famous stocks because they are already fully priced.

I am aware that this is not the perfect accounting method of valuing company assets. If you use the same method to evaluate the assets of other plantation companies, you will find these are relatively cheaper.  I consider it is good enough to help select plantation shares.

The Sarawak Plantation price chart below shows that its price tumbled from Rm 2.62 to Rn 2.45 with unusually high volume in the last few days. I think I bought almost all the shares traded in the last few days. In a case like this, many holders would follow to sell because of fear that the price might go down further. Please remember this lesson.

 Graph 2

I can smell the bull charging from the plantation. Decide quickly and get in early of a new plantation bull run. 

I am obliged to tell you that I own all the above mentioned shares. If you decide to buy these shares, I am not responsible for your profit or loss. However, I can assure you that my intention is honorable. 

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