I thought I could kick back and relax in HK. I had started to write about this stock Rimbunan Sawit but the markets kinda weaken substantially, so it was saved as a draft. However, Mr. Koon, ze super-investor, emailed me with his write up about Rimbunan Sawit - go figure!
My selling catalyst was going to be "why do you think IOI Corp got out of buying the plantation land from Dutaland?". IOI Corp probably figured that they were going to end up paying RM69,700 per ha if they did the deal. IOI Corp probably knew how "valuable and attractive Rimbunan Sawit was" but probably couldn't accumulate a significant stake or takeover the company. Sometimes, you don't have to control everything when you see value ... because buying Rimbunan Sawit now means pricing Rimbunan Sawit's plantation at just RM21,800 per ha. ... Timing wise, after the recent corporate exercise with RM400m additional funds to invest, Rimbunan Sawit now have a very good volume trend, maybe good to collect a substantive stake by shrewder investors instead of buying Dutaland's assets.
Math is math, you only get that kind of values if its was deep in the Papua New Guinea jungle with no excess to roads or ports!!! So there you, why so gung-ho looking at a stock to buy NOW ... because:
Dutaland RM69,700 per ha
United Plantations RM81,400 per ha
Rimbunan Sawit RM21,800 per ha
Target price, gawd, you'd be looking pretty holding this till it doubles at least!
Still not convinced, well have a read of Mr. Koon's write up, which I received yesterday:
R. Sawit: In all my life, I have never been surer of making money than now in buying of R Sawit.
I have studied almost all the plantation stocks and in my opinion R. Sawit is the cheapest in terms of NTA and its profit growth prospect in the next few years. You can read the details from its right issues prospectus. If you have bought one share at Rm 2.28 before the X rights, you could subscribe for three rights at 80 cents each.
As a result, the total number of issued shares is four times bigger and your average cost would be RM 1.17. Moreover, you would be given one bonus share for every one share you own. As a result the total issued shares is 1308 million.
Since the rights issues and the bonus issues were listed on 9th Nov, the daily volume traded has increased to a level that has not seen before. It closed at RM 0.83 on 9th Nov. with an increase of 0.83X2-1.17= 49 cents.
The increased volume traded daily together with the rapid increase in the share price indicates many Fund Managers are now buying as if tomorrow is too late to buy.
As you know, I do not or very seldom recommend people to buy any share. But in this case, I am doing it because I strongly believe this share is the cheapest plantation company in terms of NTA and profit growth prospect in the next few years which is the single most important criterion in share selection.
Most of the palm trees are below 10 years old and their plan to continue planting on their remaining about 23,545 ha in the next 3 years. Imagine the increase value of this additional planted area?
Moreover, unlike any other industry, the profit margin- selling price minus cost has been more than 100% in the last several years for the oil palm plantation. For example, the average selling CPO price for this year should be about Rm 3,000 and the production cost is about Rm 1,300 per ton..
In fact I always have a significant portion of my investment on plantation stocks because the palm trees will always grow and the land will always grow in value. Moreover the demand for palm oil will always grow due to the population and economic growth in China and India, our two most important buyers. In actual fact, the financial difficulties in USA and Europe have little effect on this business. Which business can give you more than 100% profit margin?
The share closed at Rm 0.83 on 9th Nov 2011. Its market capitalisation = Rm 0.83 X 1308 million issued shares= Rm1086 million.
Total planted acreage is 49,300 ha. The cost per ha is 108672 million divided by 49,300 = Rm 21,756.
IOI announces about 3 months ago that they are buying about 11,900 ha of oil palm plantation from Dutaland Bhd for Rm 830 million cash = Rm 69,740 per ha.
For Rm 830 m cash you can buy 77% of the whole company of R Sawit Bhd which have just received about Rm 400 million cash from the right issues.
United Plantation total issued shares is 208.13 million shares X Rm 17.80 = Rm 3,705 million market capitalisation. According to its annual 2010 report it has 45,494 ha planted that is Rm 3,705 million divided by 45,494 ha= Rm 81,439 per ha.
R Sawit is selling only at Rm 21,756 per ha.
Koon Yew Yin
10th Nov 2011
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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