HS Plantation - 28 May 2021

HS Plantation had released Q1 report recently. The turnover is 121.3 million with 29.4 million profit. See chart below.

Source: MalaysiaStockBiz

Interesting to note that their CPO selling price was RM3854 per tonne which was significantly higher than other plantation companies. See below note in the Q1 report note.

Compare to last quarter (Q4 2020). The sales revenue has dropped which is a bit surprised. However if the subsequent 2 quarters can pick up at RM150 million, the chances to hit RM500 million revenue is high.

Simple explanation of the lower revenue can be shown as chart below.

The revenue is the factors of sales volume and CPO price. I think the lower sales volume is partially offset by high CPO price. I personally prefer high CPO price with lower sales volume than high sales volume but low CPO price.  This is because higher CPO price will give better profit margin as you can see from chart above.

The lower FFB is mainly due to wet weather condition. Coming June is production peak month and stock will increase (according to research house).  Hopefully this will boost up the sales volume. CPO price still high at RM4216 per tonne on 27 May 2021. Soybean Oil future still hovering at high price of US67.

Share price chart

Share price is still on uptrend although volume is extremely low recently. With high CPO price and hopefully better sales volume in Q2, I am optimistic that Q2 result will be better than Q1.

The current PE is around 12.5 which is still on the low side and considered attractive compared to other plantation giants (other lower PE companies are CEPAT, ChinTek and SOP).
  

Interesting to note that between Nov 2020 to March 2021, substantially shareholders are reducing their stakes to comply with 25% public spread. 

At time of writing, I own HSplant shares and will continue to hold.

Crude Palm Oil - 26 May 2021 Update

 Some plantation companies have released their quarter reports like KLK, TSH, IOI, SIME Plant etc.

All showing good profit/revenue as a result from high CPO price.

However, market believe that CPO will not sustain and below are some points from a research house:

Analysts forecast that CPO price will not sustain till year end because of the following:

• Weak consumption
• Stock increase

Coming months (June onward) are production peak months. The forecast CPO price after Sept will drop to RM3500 per tonne. My view is RM3500 per tonne is still very high and companies will benefit. See my writing on HS plantation dated 12 May 2021 (exactly same forecast!!).

Weak consumption is because China switched to import more soybean for pig farming and Europe tighten the use of palm oil (this is not new actually). The only export market that is supporting is India.

 

According to the research house, the recent spike of CPO price are due to the following reasons:

·         Soybean price increase

·         Tight supply of CPO

·         Quantity easing which cause flow of funds to commodity

 

There is also problem of ESG compliance for certain companies like FGV and Sime Plantation. US is banning SIME plantation. The foreign holding of these companies is reducing. Labour shortage is another issue that plaguing plantation companies.

 

In short, below is the forecast of the research house

Year	Second half 2021	2022
Forecast CPO price / RM/tonne	3500	2700

 

My View:

RM3500 per tonne is super good price and RM2700/tonne is good price.

If we look at recent quarter reports form KLK, TSH, SIME and IOI, all showing CPO price around RM3000 per tonne.

 

 From SIME Plant:

From IOI Plantation

“KUALA LUMPUR: IOI Corporation Bhd is expected to post much stronger results in the fourth quarter ending June 30,2021 (4Q21), underpinned by higher palm oil prices and production, TA Securities Research says.

In its research note on Monday, it said IOI Corp management expects the overall financial performance for 4QFY21 to remain good, supported by high crude palm oil (CPO) price and increase in crop production from the plantation segment as well as the expected demand improvement in the manufacturing segment as the global economy recovers gradually”

 

Unless the actual realized CPO is much lower than published CPO price, the profits of these companies will be as good as forecasted. Let's monitor and see.

 

SamChem Berhad - The Chemical Company

THIS ARTICLE HAS BEEN UPDATED ON 15TH SEPTEMBER 2021

Company : SamChem Holdings Berhad

Business:

Distribution of chemical and lubricant for various industry electronic, agriculture, oil & gas, construction, printing, automotive etc. Distribution business model is low margin but stable business (less fluctuation). The sectors covered are very wide which mean the business is not dependent on single sector. Company also expands their business in ASEAN especially in Vietnam and Indonesia.

Some of the well-known chemical companies that represented by SamChem.

Fundamental 

RM1 billion revenue company with bank borrowing of RM255 million against cash at bank of RM143millon as at 30^th June 2021. This business model requires long credit days and high working capital. Hence short-term borrowing is necessary. The cash flow from operation can run into negative as company build up inventory. Nevertheless, the company has established the business for long time and no problem to operate in such a way.

 

 

 

 

5 years revenue

Year	2020	2019	2018	2017	2016
Revenue (‘000)	1,052,510	1,057,342	1,096,222	937,523	697,178
PBT ('000)	60,293	36,120	32,190	36,052	27,999
PAT ('000)	44,436	25,933	23,671	26,235	18,954
DPS	4.2	4.0	3.0	3.0	5.5

 

 

There is a clear growth of profit margin from 1.6% to 5% although still low. Improve of margin is attributed to various cost control measures and efficiency in distribution. Hopefully this trend will continue. Revenue surpassed RM1 billion-mark in 2018 with major contributions from Malaysia, Vietnam and Indonesia.

 

Geographical revenue breakdown. 

Malaysia is still the largest contributor of revenue.

2020	Malaysia	Indonesia	Vietnam
Revenue (million)	458	132	450
Breakdown	44%	13%	43
PBT (million)	33	9.7	18.1
Break down	54%	16%	30%

 

Lates result at glance :

Q2 Result

 Prospect:

The business is very much depending on the GDP growth as their products covers wide industry. Few good things to look forward to improve their profit margin further.

• Company is building a warehouse in Pulau Indah.
• Awarded distributorship for Shell lubricants.
• Building warehouse in Vietnam for blending, storage and distribution.
• Low interest is good for the company.

 

 

 

Risk

• Possible Vietnam operation shut down due to COVID ? I still does not have any responds from them despite writing few emails to inquire.
• Raw material price increase as a lot of chemical are crude oil based.

 

Dividen

Stable dividen paying although not much.

 

Technical Analysis on Chart:

Price speak at RM1.99 before droping to RM0.66 after bonus issue. It is now gainng momentum to RM0.86 which equivalent to RM1.72 pre-bonus issue.

This company is good for long-term but if you are savvy in technical analysis then short-term trade is possible. At time of writing, I own few SamChem shares.

HeveaBoard Bhd - Q1 result review - 20 May 2021

 Heveaboard Bhd has released Q1 result on 20 May 2021 with loss of RM 831K. This is unexpected as the forecast is profitable of RM 8-10 million which is similar to peer of Evergreen. 

The loss was mainly due to 10 days shutdown of RTA department due to COVID positive case of their employees. Shipments and production plan have to rescheduled.  RTA is the biggest topline contributor to company revenue (65%) and Japan is the biggest customer (>78% as reported in 2019 report).

However, it is good to note that revenue actually increase for all segments. Particleboard is still profitable despite preventive maintenance shutdown. Particleboard is 30% of the company revenue and export to China (29%) and Japan (20%).

Share price:

Price drop below SMA200  (RM0.604) to RM0.575 as 20 May 2021. No sign of moving upward in near term. 

Prospect:

Company fundamental still remain intact. Outlook for particleboard and RTA remain strong. Will hold and monitor till second quarter. Forecast profit revised to RM24 million for full year 2021.

 

HS Plantation - 12 May 2021

Company : Hap Seng Plantation Bhd

https://www.hapsengplantations.com.my/

Business :

Oil palm plantation and production of Crude Palm Oil. Owned 4 RSPO certified palm oil mills. Plantation mainly in Sabah. See map below. 90% of the planted areas are mature oil palms.  

 

Fundamental :

5 years revenue chart is as below. Peak revenue was in 2017 of RM555 million.

Interesting to see that CPO price was peak at RM3300-3400 per tonne in the period of Nov 2016 to Feb 2017. Average throughout 2017 was at RM2700 per tonne. The revenue recognized the CPO price fully in 2017.

 

Share Price:

Price bottom at RM1.20 in April 2020 (COVID + Lockdown). It was then slowly on uptrend till RM2.00 (May 2021). 5 years price charts shows peak price at RM2.60 in Oct 2017. Bear in the mind the CPO price at that time is only RM2700 per tonne! I estimate there is room of RM0.50 to go until end 2021 or early 2022.

 

1 year chart

 

5 year chart 

Profit:

Last 3 quarters of showing profitability of 34.3mil, 25.1 and 37mil. This is good signal that the worst is over for CPO and probably looking at commodity Super Cycle? The company has a dividen payout policy of 60%. I forecast to be 11 cents similar to 2016-2017 which is an attractive 5%.

 

Prospect/outlook 2021:

Following are extracts from their 2020 annual report.

 

My 2 cents:

Share price is not fully reflected the high CPO price of RM4500 per tonne. The revenue was RM555 million in 2017 with CPO price of RM2700 per tonne. Conservatively estimate the CPO price for 2021 at RM3500 per tonne, revenue will comfortably exceed RM555 million and share will worth more than current price RM2.00 (May 2021). Not to mention that crude oil is trending higher and definitely will support CPO price as Indonesia will use more CPO for biodiesel. Of course there are risks of weather, labour shortage etc but I think worth to take.    

Year	CPO (RM/tonne)	Revenue (million)	Peak Share Price
2017	2700	555	2.60
2021	3500 ??	???	??

 

At time of writing, I own HSPlant shares. Buy at your own risk.

Quick View on Crude Palm Oil

Crude Palm Oil hitting RM4652 per tonne as at 6 May 2021 (MPOB website). Record high and good to visit plantation stocks again. By the way, CPO price usually goes together with Crude Oil price. Malaysia is second largest CPO producer (approx 19 million tonnes per year) after Indonesia (approx. 44 million tonnes per year). Sime Darby is the largest CPO producer in Malaysia.

 

 Below are information taken form The Edge:

https://www.theedgemarkets.com/article/malaysia-cpo-production-expected-top-20-million-tonnes-2020

• Malaysia’s CPO production is expected to go above 20 million tonnes, while Indonesia should add one to two million tonnes to its 2019 production levels, as yield stress from 2019’s dryness is over.  
• India’s total import of vegetable oils should come in at between 13 million to 13.5 million tonnes in 2020 (from the 15.5 million tonnes in 2019), and rise back to 15 million to 15.5 million tonnes in 2021.
• Meanwhile, palm oil demand is still viable in Europe due to tight rapeseed oil supplies and palm oil gaining market share given its status as the cheapest vegetable oil. This is particularly the case in biodiesel, which makes up 50% of total European demand for palm oil.

 

What is palm oil mill?

Palm oil mills process fresh fruit bunches from oil palm trees. It is a strategy for plantation company to own palm oil mills to process the FFB immediately after harvesting. However, palm oil mills are additional cost and need to operate at optimum capacity. Refer to the process below.

Products from FFB are as follows:

 

Leading importers for CPO are India and China

https://www.theedgemarkets.com/article/indian-and-chinese-demand-palm-oil-likely-rise-2021

• In 2019, India accounted for 19% of global palm oil imports, while China accounted for 13%. As of September 2020, China and India were also the two biggest importers of Malaysian palm oil. 

https://www.nst.com.my/business/2021/03/676703/china-import-71mil-tonnes-palm-oil-2021

• KUALA LUMPUR: China is expected to import between 6.7 million tonnes and 7.1 mil tonnes of palm oil in 2021, owing to the tightness in the country's vegetable oil.

 

Quick fact: Forecast India import 13 mil tonnes and China import 6 mil tonnes from Malaysia. If these countries increase imports, Malaysia will not have enough to supply then Indonesia will supply the shortfall.

 

CPO price factors

Forecast of CPO price till 2025 is US$777 per tonne. See link below but I think this site is too optimistic.https://www.statista.com/statistics/675813/average-prices-palm-oil-worldwide/

Please note this is only forecast, nobody will know the actual price will be. There many factors determining the CPO price such as weather, soybean oil, biodiesel B30 mandate in Indonesia)

 

Weather Impact on Palm Oil production

El Nino – Hot weather (less rainfall) – bring down yields of FFB.

La Nina – High rainfall & flooding – disruption to harvest – lower FFB. Conversely high rainfall will result better FFB yield.

 

Soybean

Soybean producers are China, US, Brazil, Argentina. See link below: La Nina will have impact on Soybean as well. Soybean price will affect CPO price as both are major vegetable oils.  

https://www.indexmundi.com/agriculture/?commodity=soybean-oil&graph=production

Major Vegetable Oil consumption is as follows:

Heaveboard Bhd - 7 May 2021

Company : Heveaboard Bhd

http://www.heveaboard.com.my/

Business :

Manufacturing particleboard, Fungi business (King Oyster mushroom) & manufacturing of RTA (Ready to Assemble) furniture. Business peak in 2017 and 2016 with turnover of 540 million revenue.

 

Fundamental :

Cash rich company. The 2019 annual report shows that other investment is 66 mil and short term deposit is 62 mil. Non current liability is only 7.5 mil. Healthy cash flow from operating is 64 mil and bulk is used to pay dividen.

 

Share Price:

Price peaks at RM0.80 in December 2020 then trending down to RM0.62 in Apr 2021. Number of share is 567 million and have some institutional investors (Pheim & AM for EPF – less than 1%). 5 years price chart shows peak of RM1.80 somewhere mid 2017.

 Profit :

Last 2 quarters of 2020 showing profitability 8.2 mil and 10.3mil – good sign. Assuming 8 million per quarter in 2021 then total projected profit is 32 million. Forecast 3 cents dividen over price of 73 cent. This will translate to 4% dividen (better than bank FD rate). Company has dividen payout policy of 30%

 

Prospect:

Company export to China, Japan, South Korea, India, Australia, Europe and USA amongst others. Risk is RTA segment face shortage of foreign workers. Other risks include raw material price of rubberwood, glues prices and oversupply from Thailand, Vietnam producers? Monitor the financial results for 2 quarters.

Please note that particleboard is not the same as plywood.