Palm Oil is a renewable resource, and is important component in many industries, such as food and biofuel. Furthermore, the yield from a palm plantation is much higher than that of other organic oils, such as sunflower, rapeseed and soybean, and demand of Palm Oil has increased worldwide as compared to other natural oils.
With alternative energy the focus in recent years, and most likely years ahead, the oleochemical industry is set to provide a renewable (although not pollution free) resource, and wean the world off dependence of petrochemicals.
About First Resources
First Resources Limited is one of the leading oil palm plantation companies in Indonesia. We are an upstream operator with primary business activities in the cultivation and harvesting of oil palms, and the processing of fresh fruit bunches into crude palm oil for local and export sales. Established in 1992, we are one of the fastest-growing plantation companies in the region. Today, we manage more than 100,000 hectares of planted oil palm plantations and operate 8 palm oil mills in Indonesia. Our plantations produced approximately 1.4 million tons of fresh fruits bunches and 323,000 tons of crude palm oil in 2008.
Why First Resources
I decided to look into the following companies for comparison: Indofood Agri, Golden Agri, Kecana Agri, First Resources and the company with the biggest market cap, Wilmar. Going by market cap, First Resources ranked 4th among these 5 companies.
For the year ended 2008, the profit margin for Golden Agri came up tops with 48%, while First Resources profit margin was 41% and Wilmar was 5%. Delving into the Operating Profit Margin, Golden Agri had a margin of 67% with First Resources having 75%, Wilmar having 7%. Total Profit for the Year is as follows (based on today's exchange rate):
Indofood Agri - 1,066,727 Rp Million - 157 million SGD
Golden Agri - 1,418,645 USD '000 - 1977 million SGD
Kencana Agri - 10,324 USD '000 - 14 million SGD
First Resources - 1,151,597 RP Million - 170 million SGD
Wilmar - 1,556,431 USD '000 - 2169 million SGD
P/E Ratio for 2008 showed that GAR was trading at a P/E of 1, with First Resources at a P/E of 3. All companies were not highly leveraged, all with a gearing ratio of less than 1.
The noteworthy point however, is that in 2008, due to an increase in value of CPO and kernels, resulted in all companies posting an increased profit. This fair value gain however, is not a realised gain, and as valuations change, so will the income statement. Taking that factor out, First Resources had an operating profit margin of 61%, and a YOY of 105%. Wilmar had a YOY operating profit of 138%. Golden Agri posted a drop of 10% YOY when the factor was removed.
Looking at the most recent earnings release (3Q 09), at this point I narrowed down to First Resources, GAR and Wilmar, First Resources posted a drop of 34.7% in Gross Profit over the YTD, Wilmar with a drop of 33.1%, while Golden Agri posted a change of -55%. EPS for YTD of FR was 436Rp, Wilmar was 18.12USD cents and GAR was 1.18USD cents. Extrapolating it to a full year, FR would have an EPS of approximately 580Rp, Wilmar to be at 30USD cents and GAR with 1.6USD cents, giving the following P/E ratio:
GAR - 21
Wilmar - 15
FR - 11
Furthermore, upon looking further into the Q3 report, First Resources had an increase in 10.3% volume of CPO and 1.7% of Palm Kernel, while Wilmar had a decrease in 5.4% of Palm Oil, while seeds increased by 19.4%. Values were not available for Golden Agri.
The only 2 challenges that I foresee is the price of palm oil being a hindrance, and that First Resources has a much lower market capitalization than its competitors. For the first, as the demand for palm oil will increase and play a greater part for the next decade, the price of palm oil will increase, and as for the latter, it would depend greatly on the management.
*Disclaimer I am vested
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