Most investors overreact on good or bad news. During the current depressed crude palm oil market, investors quickly sell down their plantation holdings as if there will be no more tomorrow. As a result, almost all plantation shares are over depressed and many of them are undervalued. I consider the most undervalued stocks are Trade Winds Bhd (TWS) and Trade Wings Plantation Bhd (TWSPlant).

Trade Wings Bhd owns 70% of Trade Wing Plantation and 72.6% Padiberas National (Bernas). It also controls the sugar business in Malaysia and some property development projects.

  1. TWSPlant has about 105,000 ha planted area, all within Malaysia. For comparison, Genting Plant has about 96,000 ha planted area which are widely spread over Malaysia and Indonesia. Genting’s market capitalization is about thrice of TWSPlant. The EPS of both companies for last year was about the same, yet Genting is selling at 15.3 P/E ratio and TWSPlant is selling at 7.4 P/E ratio basing on the latest closing prices. Is that reasonable?
  2. Even at the current depressed price for all plantation counters, TWS’s 70% share of TWPlant has a market value = 0.70 X 529 issued million shares X Rm 4 = RM 1.48 billion. TWS also owns 72.6% of Padiberas National which has a market value = 0.726 X 470 issued million shares X Rm 3.26 = Rm 1.11 billion. Rm 1.48 billion + Rm 1.11 billion = Rm 2.59 billion which is more than the Market Cap of TWS which is 296 million issued shares X Rm 6.40 = Rm 1.89 billion.

What about the value of their monopoly sugar business? Just a few days ago the price of sugar was increased by 20 cents a kilo which will result additional profit. If the Government did not allow the price increase, obviously there would be short of sugar supply. Monopoly business always has the ability to control the selling price of its product.

The price difference of soya bean oil and palm oil is now about US$ 300 per ton because of the shortage of soya supply due to the draught in the U. S.A and South America. Soya has been selling at historical high price recently. Many analysts are predicting that the crude palm oil price will soon recover to Rm 3,000 per ton.

I am obliged to tell you that these two counters form a major part of my investment and you are buying at your own risk.

Koon Yew Yin
12th Oct 2012

Stock 101 Quiz

    1 Response to "The most undervalued stocks I know"

    • Peter Lim

      What happened to RSawit and SOP ? Isn’t that suppose to be Koon’s two biggest holdings? Or have he changed ?

      I can’t resist to copy a quote from Buffett. He says, “If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker – but not your partner.”

      My saliva comes out just imagining the amount of brokerage fees paid by Koon. How i wish i can get a slice of it. 🙂

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