Ride on the Oil Palm Industry Boom

Recently I’ve got some clients asking my opinion about the oil palm investment opportunity. A few days later, I received an exclusive offer (is it really exclusive?) from Alliance Bank to participate in the Country Heights Grower Scheme (CHGS). By investing a minimum of RM7000 per plot of 1/4 acres, you will enjoy the upside exposure of oil palm boom.

Did I invest in it? No, I didn’t. But don’t go away yet. Read on to find out more.

What is CHGS?

According to the brochure:

Country Heights Grower Scheme is an innovative concept combining farm/estate ownership and investment. The returns are pegged to the CPO price and plantation output. This provides an opportunity for investors to own a piece of oil palm plantation and generate profit annually, as outlined in the graph below.

Click the image for larger view.

What is the income potential?

Again, according to the brochure, you will get

  • 8% guaranteed return p.a. on year 1 to year 3 (2007-2009)
  • 23 years continuous return on investment (12% to 17% nett return based on average 2007 CPO price and annual production yield of min 20 Metric tonne / Hectare of Fresh Fruit Bunch from year 4 to year 23 (2010-2030)
  • Ownership of a plantation plot from 1/4 acre onwards
  • Share of Nett Proceeds from the sale of plantation land upon maturity period.

We all know that palm oil industry is growing like a hot cake recently, due to the positive demand for bio-diesel and edible oil. However, I think bio-diesel is not a long term replacement of petroleum-based diesel. Bio-diesel still requires us to burn something to get energy.

What’s the Exclusive Offer?

The offer is either
12-month Instalment Payment Plan with 0% interest using my Alliance Bank credit card.

or

Purchase minimum 2 plots to enjoy 2D/1N stay worth RM780 at Palace of the Golden Horses

That’s nice. By the way, I am not tempted.

More information

For the most updated information, you can visit the website of CHGS. The best place to start is the FAQ (Frequently Asked Questions)

Did I mentioned the price is RM7000/plot at the beginning. At the point of writing, the CHGS website showed that the price is now RM8000/plot.

Before you invest, take a look at the Master Prospectus and the Agreement.

Now I know many would ask why didn’t I invest in it? The answer is simple: I invest in what I understand and have confidence in. Still remember the top rules of investment? I also prefer investment that gives me more control.

More consideration:

  • Investors will not receive the land title upon investment because they are actually investing on the interest of the land. In layman terms, you invest in agriculture land, but without getting the title. You pay for a piece of land, but no title.
  • It is not so liquid. However, growers (investors) are allowed to make transfers to a third party and the transfer fee is RM 100 per transaction. For those who bought earlier (probably paid only RM6000-7000), can you sell it now for RM8000? Who will help you to find a buyer?
  • The long tenure of 23 years.

Did you buy a plot? Please share with us your experience.

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27 Comments

  • Vincent Lee

    Reply Reply June 16, 2008

    Interesting. Guarantee for 8% is almost similar to ASB, which is good. But not sure whether it is guarantee by Bank Negara. And there is risk of no return should the CPO price falls below RM 800/MT.

  • Khaw Aik Heng

    Reply Reply July 22, 2008

    I invest in this scheme since last year August at price RM5000.00 per plot. And at the same time become active agent for the scheme. I highly recommend my clients to diversify their investment portfolio into low risk investment instrument particularly during the economic down cycle. I can answer most of your concerns and make you understand and have confidence in. Drop me an email. Thanks.

    • KCLau

      Reply Reply July 23, 2008

      Hi Aik Heng,
      I have emailed you regarding this matter.

  • leekk8

    Reply Reply July 24, 2008

    As the palm oil price is fluctuating, how this scheme can assure the 8% annual return permanently?

  • Fraternity Caps

    Reply Reply September 17, 2008

    i understand and i totally agree to your points of not opting to buy. also i would like to add another point, it is very important to check on the fundamental of the company. as some may already know, the company is undergoing major restructuring recently. they also have a fair share of distressed projects historically. so wether they will be able to outperform their previous performance this time, i leave it to everyone to judge.
    p.s. mind u also that this is a JV between Country Heights and Yayasan Kelantan, what their productivity we cannot tell. but i can say this, Country Height was never a plantation company.

  • Fraternity Caps

    Reply Reply September 17, 2008

    i agree with your opinion. i'd like to add that one should check on the fundamentals of the company. CH is undergoin a major restructuring and has has a long list of less than impressive previous business undertakings. it is a company with the reputation of over promise but under-deliver. but again its only my opinion. but consider this, this project is a JV between CH & Yayasan Kelantan, but again CH was never a plantation company. so wether they are fit and compatible in this business endeavour, u be the jugde.

  • KCLau

    Reply Reply September 17, 2008

    Thanks for your insight.

    http://www.kclau.com
    Via iphone (爱疯)

  • Kris

    Reply Reply October 5, 2008

    I saw this offer before. Seriously, i don't know the company that well. And i think over 23 years, there will be more profitable investment than this like unit trust, etc where you can easily GO IN & GO OUT easily. Palm oil has its economic cycle, sometimes the planters will suffer losses during those lean years.

  • KCLau

    Reply Reply October 5, 2008

    Yes. I think it is not so liquid

    http://www.kclau.com
    Via iphone (爱疯)

  • Josh

    Reply Reply February 15, 2009

    Frankly speaking, it is not easy to manage an oil palm estate and ensure it is profit. i have been in plantation field since young and constantly face many problems.

    in order to ensure it is profitable investment they have to make sure few problems below is under control:

    1) wild life from nearby jungle not harming young palm tree(elephant,babi hutan, monkeys etc etc) . on southern and western penisular estates, they do have good foundation on minimizing their threats. if they don’t , the damages might get to 30% of the plantation tress(baes on my 2k acres exeprience….i don’t dare to think kelantan nearby Gua Musang , big jungles areas is better than others existing estates.

    2) workers. foreign worker not that interest to come malaysia and work in plantaion like before. locals don’t want work in plantation due to low paid. if CH give them good paid , then we won’t get good return.without thses worker…more worst, all our money(the fruit bunch) get rotten on the palm tree.

    3) manager(person who managed the estates and makes it run) . do you know, a good managers who able to optimised their staff, good in saving companies money,knowledgeable in oilpamlm tree, good in goverment rules(workers rules), certified and really know how to good use MPOA and MPOB advises really can save (with average cost per tonne Rm 600++ per tonne(it is not a Joke, i had seen it myself) . even the fluctuating market of oil palm price (let say about Rm1.8K ) we still can earn 1.2K per tonne. unfortunately, not many managers really eager to be so efficient. if their average cost per tonne is more than 1.2k, thats the “manager” that i worried for.

    4) oil palm tree . who gave this seed to them? reliable outputs? it is 23 years investment, if with just slight abnormalities on the tress, may god bless us.

    5)goverment . plantation field have save our countries from recession many many times before. yet,i don’t see appreciation from goverment on helping plantation(much). there are too many taxes and explotation that outsiders don’t really know. when oil palm price is high, goverment taxed us “geng geng”. when price fall down and we have problem, who is standing out and protect us(worker regulation , fertiliser , taxes, pestisid banned etc etc). sad to said, not much….

    Now , come back to CH investment. Unless they can ensure all problems as i mention above ,they CAN SOLVED IT, i might give them a chance.

    there are still many factors which i would like to share. but i guesss, better to stop here.

    thanks.

    Josh

  • KCLau

    Reply Reply February 16, 2009

    @Josh,

    I really appreciate your valuable feedback. I can see that you are very experienced in palm oil plantation industry.

    This product is much much more complicated compared to normal unit trust investment. A unit trust manager needs research team and investment experience in stocks. But for CHGS, according to your sharing, it requires a lot of work outside of manager’s office.

  • Denn L

    Reply Reply February 24, 2009

    I think it is too optimistic to claim that they can provide up to 17% of annual returns. This is because for a company which their strenghs are not in the plantation industry & was undergone restructuring, it’s nearly impossible for them to produce >25 Mt/Hectre of FFB per year.
    In my opinion, the projected returns for this investment is just between 0%-13%.The risk is if the CPO prices drop below RM1300, the return rates will be lower than FD.

    • KCLau

      Reply Reply February 26, 2009

      Hi Denn L,

      Thanks for your input. It is almost impossible to give 17% return at this moment and situation.

  • Aloony

    Reply Reply March 16, 2009

    Recently, I was offer a similar investment scheme which exactly the same excepts below:-
    1. RM15000 per acre ( instead of RM7000 per 0.25 acre)
    2. Total 2000 acres offered which consists 70% rubber trees and 30% oil pam trees (instead of 100% oil palm trees).
    3. Estimated to get full return (or more) of capital in the year 15, when the rubber trees could be logged.
    4. 5% of commission to the operating company on nett revenue after deducting all operation cost.
    5. No ownership of the plant plot as the is belongs to the government on 50 years rental contract basis.
    Please help to advice me if this is a better deal or not.
    Thanks in advance!

  • Compassionate Soul

    Reply Reply March 29, 2009

    Compassionate Soul is a not for profit organization through which we like disribute pulm seeds free of cost to the rural people of Bangladesh to plant 5 to 10 pulm saplings each
    family on their unused land around their rural houses for a poverty alleviation project.
    How can we proceed?

  • hpcp

    Reply Reply July 20, 2009

    what was said in post 287 sound true

    http://forum.lowyat.net/topic/545351/+280

  • hpcp

    Reply Reply July 20, 2009

    what was said at
    http://forum.lowyat.net/topic/545351/+280
    sounds true

  • manmohan

    Reply Reply August 18, 2011

    hey guys,

    I am not a palm oil expert but i am in the financial industry and been running a fund for over 10 years and a stock broking firm. I wanna keep my advice short and sweet. With where the world economy is heading i have one advice for investors. In vest in resources, resources ,resources..the world will always need resources even in economic slump. resources such as coal,gold,iron ore…etc… and YES!! palm oil is a sort after resource… just look at historic price movement in oil palm… now is the companies promoted here the right companies to invest with…that i don’t know.

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