Monday, June 16, 2008

PPB(Perlis Plantation Berhad) and Wilmar Internationl-Part 1

Let's try to understand Wilmar International before I write a bit more about PPB.

Outstanding shares: 6,385 mln;
Market Capitalization : S $ 29,626 mln;
Selling for 2008 20 PE,
ROE: 12% with 60% gearing. ROE dragged down by goodwill as a result of acquisitions.

Through acquisitions over the last two years, Wilmar grew to about US $ 16 billion in revenue.

Keyword for their business model is Integrated Agribusiness.

Over the years, it has established a resilient integrated agribusiness model that captures the entire value chain of the agricultural commodity processing business, from origination and processing to the branding, merchandising and distribution of a wide range of agricultural products. Through scale, integration and the logistical advantages of its business model, it is able to extract margins at every step of the value chain, resulting in significant operational synergies and cost efficiencies.

Source: 2007 Annual Report

Business is divided into four segments:
1. Merchandising and processing - (i) Lauric and palm oil (ii) Oilseeds and grains.
Account for almost 80% of their revenue, 77% of PBT.
(i) Lauric and palm oil.

(ii) Oilseeds and grains

2. Consumer pack - market edible oils to consumers under various brands. 15% of revenue.

3. Palm Oil - cultivation of oil palm in Indonesia and Malaysia. Acquired 500 k hectares land with 200 k hectares planted. Target to plant 40 k hectares every year for the next 10 year. Account for 5% of revenue only.

4. Others - Fertilisers, ship owning and chartering.

Revenue by geography, China is the largest market contributes 51%, South East Asia 23%, Europe 8% and India 5%. Basically, they are covering the three most populous countries in the world, China, India and Indonesia - almost 50% of world population?

With that background,is there a case for an investment or speculation?

1. Growing income in emerging countries create awareness for nutritional food and more grains.

2. Tropical oil is still the cheapest and versatile.

3. Huge future landbank for oil palm plantation.

4. Barrier of entry -- very difficult to copy their business model and economies of scale.

5. Africa and Russia market development are underway. India market has good potential growth.

6. Not making money from CPO but from processing and end products.

7. A company that emphasize on R & D

8. Strong risk management and also on ability to grow via acquisitions.

9. Biodiesel policy by government around the world change the industry tremendousely. This has created a big demand for soft-commodities. If Obama is the next president, you can bet this alternative energy thing.

10. George Soros, Bill Gates, Goldman Sach, Morgan Stanley are big financial guys put a lot of money in agrofuel.

1. Collapse of crude oil bring about collapse in soft commodities. It's a low margin business. Net income %: 2003 -- 0.9%; 2004 -- 1.2%; 2005 -- 1.25%; 2006 -- 3.07%; 2007 -- 3.5%. Profitability improvement is due to better economies of scale and also favorable commodity sector.

2. If you trade, the risk of screw up always exist -- involving future, options and etc.

3. Change in government regulations like price control or taxes. Sold down of stock earlier of this year when China government requires them to submit for approval prior to price increase on cooking oil.

4. Weather and natural disasters.

5. Much slower growth ahead via organic growth.

What is my take? Wait for this growth angel downgrade to SGX dog status? Is Kouk business acumen declining with his Transmile entry and average down some more and exchanged PPB Oil with Wilmar International? For once, let me keep you in suspense -- I give you the facts, you form your own opinion.

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