First Resources

Having done a comparison of the palm oil stocks on both SGX and Bursa Malaysia, it seems First Resources is one of the better ones in terms of PE, profit margin, balance sheet strength and the age profile of its plantations.

As crude palm oil prices are now significantly lower than last year, now may be a good entry point.

What do fellow buddies think?

Oil palm stocks are cyclical - cannot use value approach to evaluate.

From experience, your approach is not wrong. Just that you will be going against the tide and can be very painful.

GG

(01-04-2013, 07:07 PM)vingaard Wrote: Having done a comparison of the palm oil stocks on both SGX and Bursa Malaysia, it seems First Resources is one of the better ones in terms of PE, profit margin, balance sheet strength and the age profile of its plantations.

As crude palm oil prices are now significantly lower than last year, now may be a good entry point.

What do fellow buddies think?

(01-04-2013, 09:56 PM)greengiraffe Wrote: Oil palm stocks are cyclical - cannot use value approach to evaluate.

From experience, your approach is not wrong. Just that you will be going against the tide and can be very painful.

GG

Hi GG,

Could you elaborate a bit more about going against the tide? Is it because you see the oil palm industry on a cyclical downturn? Or are you referring to something else?

http://sbr.com.sg/agribusiness/more-news...cpo-output

First Resources posts 16.1% fall in Q3 profit
By
Nisha Ramchandaninishar@sph.com.sg@Nisha_BT
14 Nov5:50 AM
Singapore

FIRST Resources reported a 16.1 per cent slide in net profit to US$43.14 million for the third quarter ended Sept 30 on the back of lower average selling prices of crude palm oil and its refined products.

This was partially offset by higher sales volumes from the refinery

im wondering why commodity stocks (especially CPO) receive little attention in this forum? First Resources, Bumitama, Indoagri, etc.

My quick thoughts on CPO:

- New trees planted during the last peak (2010-12) will now be entering their peak yield period (7-18 years).
- The recent rise in CPO from 2015's bottom was due to El Nino, prices are expected to drop as production normalises.
- The only production cost curve I can find is here.  Pretty vague
- The marginal producers are Malaysian Smallholders.  Not sure of their cost price, maybe RM 2500/t.  For Indonesians smallholders, maybe USD 500/t.  RM and IDR have depreciated recently.  Labour is the largest cost.  Malaysian producers use Indonesian labour.

As value investors, in a commodity industry we usually wait till the bottom of the cycle. Where prices drop below the marginal production cost to sloooowly squeeze out marginal producers.  And buy the lowest-cost producers (maybe First Resources & United Plantations).  We are no where near this stage now.  Come back again in a few years and see.  Does anyone have a different view on where we are in the CPO price cycle, and how it plays out?

What sort of indicators should we be looking for to see when its a good time to buy?

• Industry bankruptcies (Noble doesn't count - too diversified)
  
• Stories of FFBs being left to rot on the trees because its not worth harvesting them
  

Any long-time watchers of this industry have any other ideas of things to watch for - when it will be a good time to start looking Palm Oil again?