by Koon Yew Yin, the philanthropist tycoon.
I have studied almost all the plantation stocks and in my opinion R. Sawit is the cheapest in terms of NTA and its profit growth prospect in the next few years. You can read the details from its right issues prospectus. If you have bought one share at Rm 2.28 before the X rights, you could subscribe for three rights at 80 cents each. As a result, the total number of issued shares is four times bigger and your average cost would be RM 1.17. Moreover, you would be given one bonus share for every one share you own. As a result the total issued shares is 1308 million.
Since the rights issues and the bonus issues were listed on 9th Nov, the daily volume traded has increased to a level that has not seen before. It closed at RM 0.83 on 9th Nov. with an increase of 0.83X2-1.17= 49 cents.
The increased volume traded daily together with the rapid increase in the share price indicates many Fund Managers are now buying as if tomorrow is too late to buy.
As you know, I do not or very seldom recommend people to buy any share. But in this case, I am doing it because I strongly believe this share is the cheapest plantation company in terms of NTA and profit growth prospect in the next few years which is the single most important criterion in share selection.
Most of the palm trees are below 10 years old and their plan to continue planting on their remaining about 23,545 ha in the next 3 years. Imagine the increase value of this additional planted area.
Moreover, unlike any other industry, the profit margin- selling price minus cost has been more than 100% in the last several years for the oil palm plantation. For example, the average selling CPO price for this year should be about Rm 3,000 and the production cost is about Rm 1,300 per ton.
In fact I always have a significant portion of my investment on plantation stocks because the palm trees will always grow and the land will always grow in value. Moreover the demand for palm oil will always grow due to the population and economic growth in China and India, our two most important buyers. In actual fact, the financial difficulties in USA and Europe have little effect on this business. Which business can give you more than 100% profit margin?
The share closed at Rm 0.83 on 9th Nov 2011. Its market capitalisation = Rm 0.83 X 1308 million issued shares= Rm1086 million.
Total planted acreage is 49,300 ha. The cost per ha is 108672 million divided by 49,300 = Rm 21,756.
IOI announces about 3 months ago that they are buying about 11,900 ha of oil palm plantation from Dutaland Bhd for Rm 830 million cash = Rm 69,740 per ha.
For Rm 830 cash you can buy 77% of the whole company of R Sawit Bhd which have just received about Rm 400 million cash from the right issues.
United Plantation total issued shares is 208.13 million shares X Rm 17.80 = Rm 3,705 million market capitalisation. According to its annual 2010 report it has 45,494 ha planted that is Rm 3,705 million divided by 45,494 ha= Rm 81,439 per ha.
R Sawit is selling only at Rm 21,756 per ha.
Koon Yew Yin
10th Nov 2011
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