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DBS Vickers: After 20% Drop, These #Plantation Stocks Are Worth Buying
Hot Picks, Tradeable | 28 October 2014
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By: Tradeable
Articles (256)

DBS Vickers released a report yesterday, 27 October 2014, highlighting plantation stocks listed on the Singapore Exchange. Essentially, their analysts believe that value has started to accumulate after sharp corrections in these counters. The three counters mentioned have fallen fairly sharply from their highs experienced in the earlier part of this year. DBS Vickers feels that the market could have over-compensated for concerns on palm oil prices.

However, the research house notes that despite the sharp price correction and possible long-term bullisheness arising from “scattered dryness”, demand for palm oil in the short to medium term may continue to be “subdued”.

In this current earnings season, DBS Vickers is expecting the below mentioned counters to do fairly well on a quarter-on-quarter and year-on-year basis. This is largely due to 3Q14′s average palm oil spot price of RM2,212 per tonne.

Bumitama Agri
2014 share price peak: $1.27 (5 August 2014)

Previous close: $1.025 (27 October 2014)

Price correction: -19.29%

DBS Vicker’s target price: $1.21

Potential appreciation: +18.04%

Bumitama Agri is an upstream player and has been one of the most profitable companies in the space in 2013. The company also boasts the youngest three age profile when compared to its peers. In addition, the growth rate of its fresh fruit brunch is currently sitting at the apex when compared with peers such as First Resources.

All is not a bed of roses though. Bumitama Agri has felt the repercussions of a negative regulatory decision regarding 4,000 hectares of planted land. Bumitama Agri had its title revoked. Despite this, Bumitama Agri‘s management is confident that it can secure a lease from the new owner for a nominal payment. However, the loss of this plantation could erode medium term earnings powers.

First Resources
2014 share price peak: $2.58 (19 May 2014)

Previous close: $1.91 (27 October 2014)

Price correction: -25.97%

DBS Vicker’s target price: $2.14

Potential appreciation: +12.04%

First Resources saw its share price dive after 2014 earnings disappointed due to achieved selling prices that were below industry averages. Coupled with lower production growth in its Riau plantations, the stock saw its price dramatically fall as investors sold out. These factors look to be one-off however and the company’s growth pipeline remains on track for 2015-2016.

Despite the delay in its Riau production growth, the biological upcycle (where palm trees produce the most fruit)is due to happen sooner rather than later. First Resources also has a young tree profile. Come 2015, First Resources can expect to add about 9 percent to its mature hectarage (trees that are mature and producing fresh fruit brunches).

Indofood Agri Resources
2014 share price peak: $1.09 (24 April 2014)

Previous close: $0.81 (27 October 2014)

Price correction: -25.69%

DBS Vicker’s target price: $0.98

Potential appreciation: +20.99%

From Indofood Agri Resources‘s 2Q14 earnings report card, we can see that production growth has helped to boost the company’s margins substantially. 2Q14′s fresh fruit brunch production was up 23 percent year-on-year and 11 percent quarter-on-quarter. This helped to boost operating margins to about 20 percent which was ahead of 1Q14′s 17 percent.

The boosted margins also seem to imply that Indofood Agri Resources managed to address the operational issues that had plagued its 2013 results. With this in mind, the company could continue to fare better in the upcoming 3Q14 earnings release.

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Bumitama Agri  0.590 +0.005 +0.85%   
Business: Co produces and trades in crude palm oil (CPO), palm kernel (PK), and related products for refineries in Indonesia.

Insight: Feb-19, FY18 revenue increased 3.1% mainly due to ... Read More
First Resources  1.570 -0.020 -1.26%   
Business: Co engages in the cultivation and maintenance of oil palm plantations. [FY18 Turnover] Refinery and processing (95.5%), plantations & palm oil mill (4.5%).

Insight: Feb-19, FY18 revenue dipped 2.1% due to lower aver... Read More
Indofood Agri Resources  0.325 -- --   
Business: Diversified agri-business mfg & retailing cooking oil, with oil palm, rubber & sugar plantation in Indonesia. [FY18 Turnover] Edible oil & fats (75.4%), plantations (24.6%).

Insight: Apr-19, 1Q19 revenue rose 5.3% due to higher sales... Read More

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