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PR Newswire
15-09-2023, 08:24 AM
You may think that this is a stupid question since the output of the Bursa Malaysia plantation companies are palm oil eventually.
Palm oil is a commodity with cyclical prices. Over the past 10 years, there were at least 2 clear cycles. As a commodity business, you would think that the performance of the Bursa plantation companies would be closely correlated with palm oil prices.
If you look at the chart below, you can see some link between the revenue and profits of the Bursa plantation companies with palm oil prices. But the correlations were only 61 % for revenue and 54 % for profits. Effectively this meant that palm oil prices only explained about 37 % of the revenue changes. Movements in palm oil prices explained only about 29 % of the profits.
![[Image: Palm-oil-price-vs-plantation-performance.png]](https://i.postimg.cc/jSGSMtJ6/Palm-oil-price-vs-plantation-performance.png)
I was surprised by these low correlations. What are the possible explanations? May be the companies have good hedging operations. Some of the plantation companies have non-plantation business eg property development.
My point is that if you are an investor in plantation companies, looking at palm oil prices is not going to tell you very much about the performance of the company. You have to dig deeper.
For more insights into the performance of Bursa plantation companies go to “How the Malaysian plantation sector performed over the past 10 years”
Palm oil is a commodity with cyclical prices. Over the past 10 years, there were at least 2 clear cycles. As a commodity business, you would think that the performance of the Bursa plantation companies would be closely correlated with palm oil prices.
If you look at the chart below, you can see some link between the revenue and profits of the Bursa plantation companies with palm oil prices. But the correlations were only 61 % for revenue and 54 % for profits. Effectively this meant that palm oil prices only explained about 37 % of the revenue changes. Movements in palm oil prices explained only about 29 % of the profits.
I was surprised by these low correlations. What are the possible explanations? May be the companies have good hedging operations. Some of the plantation companies have non-plantation business eg property development.
My point is that if you are an investor in plantation companies, looking at palm oil prices is not going to tell you very much about the performance of the company. You have to dig deeper.
For more insights into the performance of Bursa plantation companies go to “How the Malaysian plantation sector performed over the past 10 years”