The Star organised the round table conference recently and the attendees were four top leaders of the industry. The whole conference is very well reported on page 20-22 The Starbiz on 25th Aug 2012.
As an investor, among all the things they discussed, I am most concerned or interested is the 6 million tons of additional oil required annually due to the world population increase and the growing affluent population ie more rich people and less people on starvation.
One hectare can produce half ton of soya oil while one hectare can produce 4 ton of palm oil. Assuming that soya oil can increase 3 million ton and palm oil can increase the other 3 million ton. They will need 6 million hectare of land to produce 3 million ton of soya oil and 750,000 ha to produce 3 million ton of palm oil. Looking at these figures, it is most unlikely they can find so much of additional land for soya every year. As a result, they will have to rely more on palm oil to cater for the annual additional 6 million ton of oil.
Record shows that Malaysia only produced 18.9 million ton in 2011 and 7.82 million tons of palm oil in the first half of 2012. Indonesia’s palm oil production is about 10% more than Malaysia.
Due to the severe drought in USA, Argentina and Brazil the price of soya is currently selling at historical high. I can foresee palm oil price will soon rise in tandem with soya. The last time when CPO price went above Rm 4000 per ton, all plantation shares shot through the roof.
Conclusion:
Reasonably well managed plantation companies will enjoy sustainable profit growth in the next few years.
Koon Yew Yin
27th Aug 2012
6 replies to "The future of Palm Oil"
Interesting comment by Timothy.
I thought i gave facts and reasoning in comment, but i guess Timothy did not receive it.
I never said i disagree with Mr Koon’s findings. I said “Just because a business is good, it DOESN’T mean it’s a good investment”. If you don’t understand this sentence, then let me give you another example. Between Merz and Kancil, which is a better car? But Merz at a price tag of RM 500k and Kancil at RM 10k, which is a better Value for Money?
In investing, it’s not as simple as “Buy a good company REGARDLESS of its price.” If it is, then nobody would lose money buying BAT, Nestle or even Digi (the 3 company that earns the highest profitability in Malaysia).
If you still don’t get it, go read “The Little Book of Value Investing”, chapter 2, page 11 for the Microsoft example. From 1999 to 2004, the earnings doubled 5 years, but the investors who bought it at 1999 lose half of their market value in that period !
Let me give my last example, just to add more “facts and reference”. Probably everyone knows MAS is a lousy business. But suppose you can buy 10% of the company for RM 10,000 . Is that a lousy investment as well ? If it still is, how if 10% of the company for RM 100 ?
You see, at a low enough price, a bad business can even be a good investment. That’s what Ben Graham and Walter Schloss did.
And at the other extreme, a good business will become a lousy investment when the price paid is way too high.
I don’t want to end this by “firing” at Timothy, and sometimes its good that old dogs don’t learn new tricks, which is what i hope for the companies i owned run by the same “old” people for the past 10 to 20 years. :-)
I agree with your point about ‘good business will become a lousy investment when the price is way too high’, but on the other hand, how can ‘a bad business can be good investment at low price’ ?
Lets say MAS still would not be able to turn their book black (return to profit) for all the time in your life, and you are offered RM1 to buy out the debt ridden and loss making 100% ownership, would you still buy it? Well ofcourse not (unless your the current boss of QPR)
Just my 2cents.
What a cocky comment by Peter Lim
Mr. Koon conclusion is supported by facts and substance. If you disagree with him, it would be great if you could give some of your insights based on facts and references.
Hammering one view without substance is just like a pistol firing blanks.
Just because a business is good, it DOESN’T mean it’s a good investment. Go see Facebook. The business might be profitable (earning more than USD 500 million in advertising a year), but it’s a lousy investment paying 100 times its annual earnings.
Then again, old dogs can’t learn new tricks.
Peter Lim,
I know you are still very angry with me because you did not believe when I told you that you should have sold your Coastal Contracts shares when it was above Rm 3.00. Up till now I have not met you. I only heard your interview by KC Lau. You gave me the same bullshit about your stock selection skill by quoting excerpts from Warren Buffet and other gurus, like what you are doing. You want to show that you are so smart because you were interviewed recently by KC Lau. Look at your Coastal price now, yes you can wait and wait until one day you will recover your cost. Yes Warren Buffet does not sell his shares because he always has a lot of cash. Just look at your own track record.
Koon Yew Yin
Lee Fong Yong said I was wonder why I couldn’t find the post titled “this is the best buying opportunity of oil palm shares”? Is it being deleted? Why
My comments : Palm Oil creates health compromise, cause of substantial and often irreversible damage to the natural environment..etc Google Search for Palm Oil or World Health Org research for details. Palm Tree drink a lot lot of water and you’ll see the surrounding palm tree hardly see others grass/wild leaves..etc.The main education sponsor here have big oil palm shares portfolios and good ROI. But with palm oil health compromise(compared to olive/soy/sunflower oil) and good profit from palm oil for long-term, it is subset the good values. You can’t find the topic/title again.