Kencana Agri

[Stockerman]

Hi

Current share price is only 25 cents. Wilmar bought it at 35 cents ...
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Currently, 75% of its oil palms are in the immature
and young mature stage. With the relatively young profile, Kencana seems poised to deliver strong double digit production growth over the next few years as its palms continue to mature and reach peak production.

http://sbr.com.sg/agribusiness/news/wilm...a-holdings

Agribusiness group to invest in additional plantation assets with the proposed purchase worth SGD80,363,130.40.

Wilmar International Limited’s on Friday said its subsidiary, Newbloom Pte. Ltd. has inked a subscription and share sale agreement with Kencana Agri Limited and its majority shareholder, Kencana Holdings Pte Ltd to buy 229,608,944 ordinary shares, according to a Wilmar announcement.

Wilmar said the said shares in Kencana Agri, to be bought at SGD0.35 per share, represents 20% of the share capital of Kencana Agri on an enlarged basis.

The investment comprises a subscription of 150,000,000 new shares to be issued by Kencana Agri and a vendor placement of 79,608,944 existing shares by Kencana Holdings.

Any view on this counter pls?

[Stockerman]

The Malaysian government established the National Biofuel Policy in 2006, which led to the implementation of the B5 mandate in some regions of the country. The B5 mandate requires that all diesel sold in these regions of Malaysia contain 5% palm oil biodiesel. This mandate is expected to be expanded nationwide in 2014, with plans to increase the minimum palm oil biodiesel content to 10%.The biodiesel sector in Malaysia has struggled to become profitable, due in part to the high cost of crude palm oil, which led to a dip in biodiesel production in the late 2000s. In 2012, there were 20 biodiesel plants in Malaysia, of which 2 were operational by early 2013.According to an advisor to the Roundtable on Sustainable Palm Oil, biodiesel production in Malaysia is expected to double in 2013.

[kagemusha]

Interesting counter for exposure to agri stock. Any buddies made any studies on this company?
My first glance is that this is a relative small player with young "assets" but poise for growth in the coming 2-3 years.
A growth stock with potential?

<currently not vested>

[BlueKelah]

small player and palm oil not doing well. Better wait until commodity markets improve first.

maybe you can look at the balance sheet and let us know if there is any value.

[Curiousparty]

This is one very undervalued counter that can quadruple the net income once the yield and CPO improve.
The bulk of the plantation is still undeveloped

Any taker out there ?
Price has dropped again to around 21 cents

[johnnydash]

kencana agri is the most undervalued plantation stock on sgx.

its low margin obscures its latent earning potential. even at this price and profit level it is undervalued; what more when profit grows next year, and the year after that. its a potential multibagger.

at current production level, a 50 USD increase in oil prices result in additional 7 million USD in profit. This compares favourably to its year to date net profit of about 11 million USD.

low margin is not a sign of bad or mismanagement, rather it reflects disadvantages in terms of scale as well as a much significant proportion of purchases of third party FFB for processing(such ffb is processed at a 5-7% margin) as compared to industry favourite Bumitama and First resources.

[Curiousparty]

With oil price set to drop further and dragging down CPO price with it, there is still further room for Kencana to drop...

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Morgan Stanley slashed its 2015 base case forecast for Brent to $US70 from $US98 a barrel and for 2016 to $US88 from $US102 a barrel, as Brent crude for January delivery fell to $US67.73/barrel, near last week's trough of $US67.53 which was its weakest since October 2009.

[johnnydash]

Will be happy to see more discussion on this stock! My own thoughts are not set in stone and I will gladly absorb any new reasonable information to correct my own analysis.

I have been following the story of palm oil and these are my thoughts.

It is easy to point out factors that affect CPO price. I do agree that lower oil price affects CPO negatively. But amongst all the factors that affect CPO price is it the most important one?

About 10 per cent of CPO is used for biofuel, hence acting as a direct substitute for crude oil. Depending on researchers and producing regions, the figures given may be smaller. It follows that there will be a drag on CPO prices due to lower crude prices but the impact will not be an overwhelming one.

The main story behind the drop in CPO prices for this year has been a bumper crop of soy oil, the main competitor for palm oil. There were record breaking yields as well as record breaking planting area. It is the greatest crop of soy in history. And we saw the prices falling from 2700 MYR as recent as April to a low of 1900 MYR in September and October.

In contrast, after crude oil's drastic drop, CPO prices have fallen from about 2200 MYR to 2100 MYR. Now it trades at about 2171 MYR. That does not consider the fact that MYR has depreciated not insignificantly so the drop in USD terms have been smaller.

Other factors like palm oil production, demand, as well as future soy production is much more significant in determining CPO price( at current levels at least). Not to forget speculative elements as well. The shock in the palm oil system this year has been bumper crop of soy.

If soybean harvest reverts to normal next season then we can logically expect CPO price to trade at a more normal range come next year at 2400 myr to 2500 myr. Is it probable that soybean harvest reverts to a more normal level? I think it is more likely than not. Agriculture yield especially soy is very much dependent on weather. And its not just good or bad. Its the amount of rainfall, moisture, temperature, variance in temperature at different stages of the harvest. A lot of things have to go right for a harvest to be record breaking. If you look up on what the farmers/ associations were talking about they were saying that the weather was perfect. Odds are perfect weather wont happen every year. Lightning doesn strike twice normally.

I'll be happy to continue collecting kencana at this price and even when prices are lower.

With oil price set to drop further and dragging down CPO price with it, there is still further room for Kencana to drop...

***

Morgan Stanley slashed its 2015 base case forecast for Brent to $US70 from $US98 a barrel and for 2016 to $US88 from $US102 a barrel, as Brent crude for January delivery fell to $US67.73/barrel, near last week's trough of $US67.53 which was its weakest since October 2009.

[Curiousparty]

When Wilmar bought Kencana at 35 cents, many thought 35 cents would form the "support level price" back then.

I would wait for oil price to drop to $50 (Brent crude) first and see how

[BlueKelah]

Johnny this is some background on CPO prices
Story of CPO price

Historical CPO prices CHART

Oil price low or high, there is a good chance of palm oil reaching RM1500 levels or below as you can see from the chart of Aug2004 - Jun2006 which was not so very long ago.