Thursday, November 10, 2011

Recommending A Stock NOW??!!

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.

26 comments:

lsb said...

Threat the RH group of coys with caution. rsawit was pushed for rights and assets injection.

the group is HQ in Sibu, my home town and i know a fiar numbers of the top and senior management.

The Malaysian Wait said...

Amazingly, not only has Dutaland agreed to refund the deposit, but IOI will also be getting back the interest accrued.

What is going on? Skeletons found on Dutaland's property ah??

ronnie said...

What is the yield per acre? IOI and United Plant are super efficient. These guys live and breathe oil palm.

Tan Sri Tiong and management presumably are equally capable in oil palm?

elmo said...

Isb, you are right. I have this deep feeling of mistrust in R Sawit. If you look at J Tiasa (same group) over the years. The company makes tons of money. Have it tickled down to the shareholders? I mean dividend wise? earned RM1.00 dividend 3 sen! What happened to the rest of the money? The price of the stock NEVER rise. Trust me you can wait until the cow comes home or better still until you reincarnate somehow the earning, dividends and the stock price never tally! For speculation yes. For long term investment, fat hope. I have made some money from this stock thru speculation... not investment.

elmo

Bonescythe said...

Must put hot hot models only effective mah :) Hahaha..
This one, not hot enough.. Give some geng one!!

Salvatore_Dali said...

ronnie, lets say the yield is same like sime darby... or wose, half of ioi, its still too damn cheap

elmo, lsb, i can understand how it is with majority shareholders who are also very rich, they don't need the dividends, they do not care much about trampling over minority rights, they do rpts with abandon ... one can buy a company for a re-rating, funds will hold a stock if its grossly undervalued and profit growth is still intact ... you may not like the management that much... like Genting, but there will be sufficient ppl who will buy... your concerns are fair comment though ... maybe the counter is not for everyone

tohff7 said...

JTiasa has been aggressively planting over the years, and this done without raising a single sen of capital from shareholders. Now their investment is just starting to pay off, and that's why they started to adopt a dividend policy recently.

William Wang said...

Most followers here are right about RH group. Sometimes you wonder why they bother to list their companies, if not to expoilt the situation.

William Wang said...

And I do not believe Rsawit has the cheapest valuation in plantation stocks. Try make a few calculations on TDM. But TDM somewhat under goverment influence & they have their way of diluting the stock to benefit a certain group of people which also frust u.

rogue trader said...

there is no other words i would say except thank you. :)

rogue trader said...

there are no other words but thank you for excellent recommendation :)

MY KLSE INVESTMENT JOURNEY said...

koon yew yin is also an investor in GUH. he is in the top 30 shareholders list.maybe dali can do a write-up on GUH.

kerry lee said...

Dear Dali,

Thank you for sharing the tip from Mr. Koon. I have noticed that Mr. Koon held more than 34 million shares in Xingquan, 4 million shares more than he did as reported last year. It goes to show that Mr. Koon is extremely bullish on Xingquan as he was on Supermax, Coastal and most recently, R. Sawit. Xingquan is RM0.91 and been quite depressed in price since a year ago. It was reported in Taikors and Taikons that MBMR is rumoured to be entering into a loan agreement with Xingquan. If I am not wrong, MBMR was initially started by Mr. Koon and Dato Yap Lin Sen. Can this rumour (loan to Xingquan) be true? Perhaps you can ask Mr. Koon to provide some comments.

elmo said...

Dali, let's be honest. It's not the majority shareholders who are rich and do not need the dividends that matters. It's the earnings that never ended up in the minority shareholders' pocket which is troublesome and irritating. Go back into the history of say JTiasa and see how much money they made and how much dividend distributed. From there look at the shareholders fund, the market price of the counter, also check their share buyback and the end of the day how much stock dividend or split they churned out over the years. You will be surprise. the earnings, the dividends and the current market price never tally. So? There are lots of holes up there... it's leaky!

tohff77, I hope you are right. Hang on for another 10 years and see how much you will profit out of this counter. I have been watching this counter for upteen years and mark me unless leopards change their spots I won't touch this with a 10 foot long pole. I'll put my cash into PBBank and go to sleep peacefully.

elmo

lsb said...

RH group is a bird nest producer in M'sia. u visit any of its plantations, timber camps and sawmills and plywood factories in any of its group companies, it has birdhouses.

do u see any revenue from bird nest farming in any of the accs?

take a look at the arial photos of rsawit and compare them to say neighbouting oilpalm plantations, see any difference?

sometimes even google satelite pictures can be informative.

lsb said...

S'wak timber groups switch to oil palm in a frenzy the last 5 years is bcoz of the land issue. they are harvesting the arcadia planted and converting it to oilpalm.

the reason being, forest wood is on yearly licence, cos CM needs the yearly fees needed to be paid as he is addicted.

oilpalm however, is given a 60 years lease. y the 60 yrs lease for oilpalm? Umno n glc coys came, felda etc., so CM had to comprise with the Malay from the west. Good now the local big boys are riding the trial.

yhtan said...

agreed with lsb, if u know the management, u will not bother looking at this counter.

newbie said...

dear SD,
may i ask u ab coastal contract?
after bonus issue, the stock just start to slide? any reason

has the fundamental of this company change?

thanks newbie

pradeep kumar said...

I read all your comments,and I conclude I will not buy Rsawit, Look at Kfima the growth and the price which controls Fima Corp, Next quarter result will surprise you and malaysia Finance Blogspot had earlier recommended this stock, good dividend and the company takes care of his shareholders, that what you investors look for.

ccdev said...

elmo, you mention so much about lack of dividend but looking at the adjusted share price of jtiasa since 2009 (http://www.tradesignum.com/chart/jtiasa), it has moved by leaps and bounds year by year. from apr'09 rm1.80 to jan '10 rm2.70 to jan '11 rm5.00 up to a high of rm7+ the capital appreciation is so fantastic and you are complaining about lack of dividend???

may said...

any comments on eah now, still can buy in?

ASHORE said...

well...if mr koon wud have shared his views just a tad earlier like on 9-11-2011, i wud definitely go in for a short term trade. But looking at the price and vol for the week esp on 11-11-2011, decided to hold the horse.

May be will consider for mid to long term investment

Blue Angel said...

I think you have "forgotten" to take into account dilutive impacts of preference shareholders converting to ordinary shares. If taking that into account, trailing PE for RSawit should be around 25x now, more expensive than Genting Plantation or any other big cap plantation stocks.

what happened to your dear Evergreen? I thought it is your favourite.

K C said...

Dali,
Can you please answer Blue angel's concern? If you are not sure, can you get back to KYY? I know you are not obliged to but I think you are responsible to clarify it. The irredeemable convertible preference shares are more than the ordinary shares before the right exercise. This means that the number of shares eventually will be more than doubled the 1300 m shares mentioned! A huge overstatement of its earnings per share potential!

Natalie Tijan said...

probably couldn't accumulate a significant stake or takeover the company. Sometimes, you don't have to control everything


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Natalie Tijan said...

significant portion of my investment on plantation stocks because the palm trees will always grow and the land will always grow in value


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