COMPARISON OF MAJOR PLANTATIONS COUNTERS IN MALAYSIA
Malaysia plantations sector is of great interests to investors due to its potential growth and profitability, as Malaysia is one of the largest supplier of oil palm products in the world. Likewise, oil palm is known to be the most efficient oil producing crop compared to other crops such as soy bean. Being located at the tropical region, Malaysia has the natural climate advantage that enables oil palms to be cultivated in large scale.
Below is a comparison of all 44 of the oil palm plantation counters
listed in Bursa Malaysia, in terms of earnings, dividend return and
efficiency of the management. Scores are assigned to each indicator and
added up together to obtain an overall performance score for each
counter, which gives an indication of the plantation counters most
worthy to invest in.
SECTION 1 – CURRENT EARNINGS, SHARE PRICE AND PRICE TO EARNING (P/E) RATIO
In terms of share price and earning per share, KLK, UNITED
PLANTATIONS and BATU KAWAN are the top three performers. As shown by the
five-year earning per share trend, most counters earnings remain steady
from year 2015 to 2019. Most counters with good earnings show a P/E
ratio above 15, which indicates that they are relatively expensive to
invest in.
SECTION 2 – DIVIDEND PER SHARE, DIVIDEND YIELD AND DIVIDEND PAYOUT RATIO
Dividend payout by listed companies to shareholders is an additional
return of investment to shareholders in addition to the increase of
share values. Generous dividend payout to shareholders will attract more
investors to invest in the counter.
UNITED PLANTATIONS paid the highest dividend per share in the latest
financial year, which amounts to a dividend yield of more than 6%. Most
plantation counters dividend yields are less than 3%, which make them
less attractive to invest in. Also notable that plantation counters such
as KLK, UNITED PLANTATION, IOI, BATU KAWAN AND GENTING are among the
most generous in dividend payout, whereby they paid out more than 70% of
their earnings in the latest financial year.
SECTION 3 – PERFORMANCE OF THE MANAGEMENT TEAM
The long term success and profitability of the telecommunications
counters will depend of the efficiency and smart strategies of the
companies’ management team. Some of the indicators offer some ideas on
the strength of the management teams.
Among the plantation counters investigated, some of the better
performing counters (e.g. KLK, UNITED PLANTATION, IOI AND BATU KAWAN)
posted a return on equity that range from 5-10%, meaning these counters
are earning more profit per unit of capital provided by the
shareholders. It expected that the ROE of plantation counters will
increase in the coming quarters since CPO prices has raised above RM
3,000 per MT recently.
Also it is important that plantation counters have the lowest
possible cost-to-income ratio, meaning it is able to control operational
cost to the lowest level. Plantation counters generally incur high
operational costs such a labour cost, fertilizer cost, re-planting cost
and so on. Well-managed counters employ strategies such as increasing
mechanization of the harvesting process (to reduce reliance on human
labour), planting good quality oil palm trees with high yield,
incorporate biomass and biogas plants (to convert waste materials into
energy) and so on to reduce cost and improve earnings. Ideally the
cost-to-income ratio should be controlled to below 1000 to improve
profitability of the operations.
Capital expenditure is important for the plantation counters in three
aspects. Firstly, the investment into machineries to improve the
efficiency of harvesting and milling of the fresh fruit bunches.
Secondly, investment into re-planting areas with old oil palms trees
with young palm, to ensure the plantations are always having a high
percentage of mature oil palms which have the highest yield. Finally,
plantation management always endeavor to identify and purchase suitable
land banks to expand the plantation areas. Overall, most of the
well-performing plantation counters have significant capex spending in
order to maintain the plantation efficiencies at the most optimum level.
This is important for the future developments of the companies.
SECTION 4 – CASH AND ASSETS VALUES
Sufficient amounts of assets and cash are important for security of
the companies in case any emergency situations happen. According to
below graphs, it is shown that most of the companies investigated are
well-supported by sufficient amount of assets, such as net tangible
assets (NTA), market capital and cash flows. So, overall these counters
are safe to invest in.
SECTION 5 – MARKET CONFIDENCE ON THE COUNTERS
Overall, there is great interest to invest in the plantation
counters, which is shown by the number of shareholders and daily trading
volume. Also noted most of the top plantation counters are well
supported by institutional investors such as EPF, foreign and local
investments funds and insurance companies.
SECTION 6 – OVERALL PERFORMANCE AND SCORING OF THE PLANTATION COUNTERS
Each of the investigated plantation counters are assigned a score
based on the above indicators. For each indicator, the best performing
counter is given score 44, the second best performing counter is given
score 43 and so on. The total score for each counter is added up to give
an overall performance score of each counter. According to the below
graph, overall top 8 best performing counters are KLK, UNITED
PLANTATION, IOI CORP, BATU KAWAN, GENTING PLANTATIONS, SIME DARBY,
SARAWAK OIL and UNITED MALACCA, respectively. In conclusion to the above
analysis, these are the eight counters most recommended to invest in
the plantations sector.
NOTES:
**DATA BASED ON ROLLING 4 QUARTERS AS OF 15/1/2020 AND THE LATEST PUBLISHED FINANCIAL REPORTS.
VOL: VOLUME, EPS: EARNING PER SHARE, NTA: NET TANGIBLE ASSET PER SHARE, DPS: DIVIDEND PER SHARE,
P/E: PRICE EARNING RATIO, ROE: RETURN ON EQUITY, DY: DIVIDEND YIELD, DPR: DIVIDEND PAYOUT RATIO
