Koon Yew Yin's Blog
The future of the Palm Oil Industry - Koon Yew Yin
Koon Yew Yin
Publish date: Thu, 15 May 2014, 03:24 PM
Koon Yew Yin
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An official blog in i3investor to publish sharing by Mr. Koon Yew Yin.
All materials published here are prepared by Mr. Koon Yew Yin
All materials published here are prepared by Mr. Koon Yew Yin
Koon Yew Yin
Since most of my investment is on oil palm plantation companies, it is essential that I must to find out the future prospect of this industry on the whole.
At the recent round table conference as reported by The Star on 25th Aug 2012, an additional 6 million tons of editable oil is required annually to feed the additional world population. It is also due to the general economic growth of the people, especially in India and China. There are less people on starvation.
Where can you find additional land annually to produce 6 million ton of editable oil?
Although China is the largest soyabean producer, they still need to import more to meet their requirement. America being the 2nd largest soybean producer has an average annual growth rate of only 5% soybean production over the past 4 decades compared to Brazil’s more robust 14% average annual increase. Experts expect Brazil to overtake America as the world’s largest soybean producer within a few years.
Soybean Oil Production by Country in 1000 MT
Rank Country Production (1000 MT)
1 China 12,246
2 United States 8,920
3 Brazil 7,100
4 Argentina 6,975
5 EU-27 2,242
6 India 1,688
It is a fact that one hectare of land 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.
Fortunately or unfortunately both China and India our biggest buyers of palm oil cannot grow oil palms. Indonesia and Malaysia produce more than 95% of the total palm oil.
Indonesia Palm Oil production
2010 23600 (1000 MT) 7.27 % increase
2011 26200 (1000 MT) 11.02 % increase
2012 28500 (1000 MT) 8.78 % ‘’ ‘’
2013 31000 (1000 MT) 8.77 % “’””
Malaysian Palm Oil Production
2010 18211 (1000 MT) 2.52 % increase
2011 18202 (1000 MT) -0.05 % “”
2012 19321 (1000 MT) 6.15 % “”””
2013 19200 (1000 MT) -0.63 % Increase
Source: United States Department of Agriculture
Recently the Indonesian Government mandated the use of 10% biodiesel. As a result, Indonesia, the world ’s biggest supplier, will not increase their export this year for the first time since 2010 even as production climbs to a record. Exports may total 21 million metric tons, similar to 2013, while consumption climbs to 10 million tons
According to the latest statistics, Malaysia produced about 19.2 million ton and Indonesia produced 31 million ton in 2013. Most of the larger Malaysian plantation companies own plantation land in Indonesia.
The average production cost per ton of crude palm oil is about Rm 1,300 and the average selling price is about Rm 2,600 in the last few years. The price went above Rm 4,000 per ton not so long ago. What kind of business will give you the much margin of profit?
Moreover, plantation land always appreciates in value and palms will start to fruit after 3 years of planting and will continue to bear fruits for another 20 or more years.
Unlike other manufacturing industries, you cannot simply increase production by working overtime or use more automation to meet demand.
Even when the CPO price is at its lowest level, well managed plantation company can still make profit. Have you seen any plantation company losing money?
I am sure readers want to know which are the best plantation shares to buy. I shall make some research and prepare a list for you.
Investment in undervalued plantation companies is a good long term strategy. The future of the Palm Oil industry is bright
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Discussions
5 people like this. Showing 35 of 35 comments
Palm started as Plantation and then evolve into Big Industry. Private and Public entity should do what it can to protect its competitiveness. With good Business Value, surely plantation land will appreciate as well.
2014-05-15 16:13
@ Kueng
Unfortunately, only MAX 5% of refined Palm Oil can be mixed to diesel.
2014-05-15 17:11
Look,we cant harvest oil palm with machines unlike soya,harvesting cost can only go up so ....so $1300 per ton oil,boleh ka?what about the planting/replanting cost?
2014-05-15 17:19
Having said that we want Good things at affordable price so it will be beneficiary to everybody. A win win situation for everybody ya.
2014-05-15 17:21
Friends, there are so many challenges ahead ya like our lives But we have to make it right?
2014-05-15 17:39
Dear SOP, market has managed to climb from crisis to crisis and it is hard to be where we are today. And each time I hope we learn and market will become more and more mature and resilient and we will never go back to the pre crisis level again ya.
2014-05-15 17:47
Mr. Koon Yew Yin for your attention. This is my response to your thought on the future of oil palm industry. Before you go further I am talking common sense so no argument but have to addressed if you are serious. Why KLK n IOI getting more then 22 mt of fruits per hectare per annum n UP getting about 25 mt. Giant plantation Sime n Felda are getting less then 20 mt, KLK n UP shares are trading more then RM25. IOI gave bonus issues a few years back n diluted the shares. Instead of chopping more n more trees to increase land bank they should strive hard to increase the yield in their existing land and in so doing they are theoretically increasing the land without chopping the jungle. A lot of expenditure can be reduced, high dividend for share holders, share price will go up n market capitalisation of our KLCI will go up. This is a national issue which have to addressed! Oil palm estates are labour intensive n needs supervision n I have worked with the white men who were the Managers then. They will be in the field for about 8 hrs supervising the workers. The manager says his eyes must fall on every palm when fertilisers are applied... is this taking place now? When fruits are harvested, it falls on the ground n the loose fruits gets scattered. Every loose fruit must be hand picked n sent to the mill for optimum oil extraction. If the Manager finds one loose fruit in the field...the field staff will be sacked.Very simple take this message with the Govt n Giant companies must tell the Managers "you give 22 mt or be prepared to get the boot" very simple..."the best fertiliser for the field are the Managers foot prints". I have done my part now please do your part, i just spoke some common sense.
2014-05-15 19:34
Inefficiency in oER may be overcomed with super palm from Sime Darby. :)
http://www.nst.com.my/business/todayspaper/super-palms-may-debut-next-year-1.581901
Besides, CBIP is working some mechanical automation in palm mills too to overcome labour shortage
2014-05-15 20:37
How good plantation companies doing for the past 13 years from 2000 to 2013.
Market Capitalisation
Genting Plantation 580m to 8,200m
KLK 3,700m to 24,000m
United Plantation 508m to 5,400m
The above is some of the well run plantation companies. For companies which has growth potential and well manage, I believe they will be doing well in the long run. Of course all fund manager will say, past performances do not represent future projections.
2014-05-15 23:23
CBIP will soon make it into this distinguished list. Comparing their hectarage, CBIP have it, and quite substantial.
2014-05-15 23:28
sosfinance's statement is most reassuring. That is why I always have some plantation shares in my investment portfolio. If you examine KLK carefully. You will notice that its share price moves up and down. All share prices move up and down. I sell them when they are high and buy back when they come down. No share can continuously goes up or down for whatever reason. To make money, you must know when to buy and when to sell.
Now is the best time to buy undervalued plantation shares. KLK, IOI, Genting and UP are famous and they are already fully valued. It is safe to buy them but you cannot expect to make exceptional profit.
I am making some research to tell you what are the best plantation shares to buy now.
2014-05-15 23:53
Dear SOP market has again and again exercised its amazing power to weed out those speculative counters with unrealistic growth so that those with Good Business will always Stand tall and proud ya.
If not, how are we be different from punters talking about Value Investing ya? If not, how are we to know who is swimming naked all the time ya?
Market has continuous and always ask those who are naked to get out. If there is no correction, How are we going to stop all those pyramid scheme, gambling, punting ya....
2014-05-16 00:33
Well. Mr Koon, you might be surprised those has done well for the past ten years will continue to outperform for next 10 years. SO in total, Business and Business has to compete for 20 years.
2014-05-16 00:37
My Dear, this is what you can do; choose a portfolio of 5-8 stocks that is doing very well during the market crash. You will be surprised that some of them are even performing well during market crash. And the worse performing one is 20% that is your criteria.
Well if you are not comfortable then you may Hold 50% cash, Fair? If you are comfortable then invest all because you know even with the market crash, your company will make it back the next year, so what is the Big deal?
2014-05-16 01:10
Come on, look at Mark Zuckerberg, virtually, his net worth is up and down by A billion every week and he is making Billion deal every quarter. And we are here to speculate about possible market crash?
2014-05-16 01:18
Uncle Koon in your opinion still can buy and keep Rsawit or you recommend any other undervalued plantation counters.Thank you
2014-05-16 05:40
I do not agree with sop's reasons for worrying about the market crash. The market is not so fragile that will crash for such small incident. In any case, fear is always the biggest obstacle to success. To make money, you must take some calculated risk.
I recommend him to read "CRASH PROFIT" by Martin D. Weiss. It gives you the proven methods to profit from market crash and seven practical strategies for building wealth in any environment.
It will take too long to fully explain my way to make profit during crash. In fact, the Hong Kong market crash in 1984 aroused my interest in share investment. I have never seen such an profit making opportunity before in doing business when every share was on closing down cheap sale. Eventually, I bought 46% of the stock broking company that gave margin finance.
To be sure of making money during any serious market correction is to open a margin account and use it effectively. Buy more when there is cheap sale.
The trouble is that during the crash, many investors dare not buy and some investors do not have ready financing facility to buy. You cannot expect to open a margin account during the crash.
2014-05-16 06:21
I am impatient to wait for your recommendation on the best plantation companies to buy ? Is TSH one of the candidates?
2014-05-16 06:31
Hi : Last night, JTiasa announced monthly production figures as below:
(1). Logs - 102,720 cubic metres.
(2). Fresh Fruit Bunches - 53,321 metric tonnes.
(3). Crude Palm Oil - 5,147 metric tonnes.
(4). Palm Kernel - 807 metric tonnes.
Can anybody kindly teach me how to translate the raw data into profit(RM)?
2014-05-16 06:40
For guesstimate of a company revenue, it is never easy.
Fortunately or unfortunately for JTiasa & rivals, one can compared the production of logs & palm tree output from past quarters. If production for this quarter is almost identical to last quarter, check the ASP for these commodities. Higher ASP should translate to better revenue and hence net profit (barring any unforeseen losses).
Happy investing
Uncle Koon, it would be nice to have you to give us guidance on how you had benefited from past stock market crash. Some suggests buying into consumer/retail related stocks as everyone will continue spend (though more thriftily) regardless good or bad times. Cars will replaced every 10 years or so. :)
2014-05-16 10:27
Short Introduction: Mr Koon made it very Big time in Supermax and Kulim Warrant during 2009 crash. And he maintains a margin account with more than Rm100 million worth of share at the moment. He is co-founder of gamuda and mudajaya.
2014-05-16 10:55
stockoperator, thank you saying those kind encouraging words. Please make your comment on 'Plantation is due for re-rating' which I just posted.
2014-05-16 11:01
Uncle Koon: What is your take on the consumption level of China on CPO? It was reported last week that the commodity fund managers are actually speculating the price of CPO by leveraging on credits from the bank. As tightening of credit is happening in China, these fund managers could no longer leverage on credits to purchase more CPO and store them in storage tanks around the port areas.
In addition, their storage level is reaching maximum level and hence the purchase of CPO got to be soften somehow. If all this excess CPO is released into the market, it may reverse the supply-demand theory. There could be more supply than demand in China. Wouldn't this affect the CPO price in the mid term?
2014-05-16 14:36
Tq mr koon for the very insightful sharing.i like yr sharing. I hv got thplnt on hand hmm time to accumulate more lots. Those who follow yr "recommendation" on jtiasa would hv make big money. Yeah!!! Evefyone let's go for plantation stock. No regret!
2014-05-17 10:34
I have just posted an announcement of my investment seminar on 1st June in KL. Please come so that I can meet and answer all your questions
2014-05-22 06:08
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Palm in the past relies entirely as a food crop. but with the usage of biodiesel. the equation has changed. with strong Crude oil prices. palm will be cushion by the fluctuations in edible oil prices.
2014-05-15 15:42