[Photo Credit: The Guardian]
Looking for more investing opportunities in the current oil and gas downturn? Here’s another hidden gem: Bumitama Agri.
Words by Calvin Yeo
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As a follow-up to our previous review on Nam Cheong, we now look beyond oil and gas to another closely-related sector that has also been affected negatively – the palm oil sector.
Crude palm oil prices have dropped significantly due to oversupply and the collapse in crude oil prices.
The two sectors share a mutually dependent relationship, as crude palm oil – which is obtained from fresh fruit bunches of oil palms cultivated in plantations – can be converted to biodiesel and serve as a replacement for some aspects of crude oil.
In the past, high crude oil prices actually helped create a support for falling crude palm oil prices. Now that crude oil prices have collapsed, crude palm oil prices have also taken a hit.
That being said, when crude oil prices eventually recover, palm oil players will also benefit.
Bumitama Agri – Young Plantations and Strong Growth
Amongst the palm oil players, Bumitama Agri looks the most promising. It has one of the youngest plantations and continues to exhibit not only strong growth in fresh fruit bunches production, but also in revenue and earnings.
Bumitama Agri’s palm oil trees have a weighted average age of close to 7 years, which is the prime time for production. As the trees grow and produce more fruit, they will become more and more valuable, until they go past the prime after 18 years of age.
Efficient Producer and Good Track Record
Bumitama Agri has one of the highest returns on equity (ROE) of close to 20.0% as compared to the other palm oil plantations. It is also very profitable with a net margin of about 20.0%.
The company has seen revenue grow from year to year over the past 5 years and also posted double-digit growths in net profit. Not the same can be said about the other producers.
Back in late 2013, Bumitama Agri was trading at a similar price of $1.00. Forward P/E then was about 14.0 times, while today it is about 12.3 times. Dividend yield then was only about 0.8%; today it is about double that at 1.5%.
It’s not much of a dividend play at this point, but more of a growth story for a few years.
Which other stocks do you think are worth buying now? Let us know in the comments box below.