How to invest in Plantation Stocks in Malaysia | KLSE Stock Series

How to invest in Plantation Stocks

Plantation firms are a key component of the Malaysian stock market, including notable names like Sime Darby, Kuala Lumpur Kepong, Genting, and IOI Plantation. The palm oil, or oil palm, business remains popular among investors in Malaysia, among others such as rubber, lumber, durian, and tea.

Here are essential factors you should address before investing in plantation firms. The palm oil sector will be used as the major example, however ideas may be applied to other crops as well.

1. Determine the land size of the firm

You should know the quantity of land a firm has, since this impacts how much it can produce and, consequently, how much money and profit it can earn. In 2020, mature palm oil plants alone covered 5.2 million acres.

Publicly listed plantation firms frequently declare how much land they hold. It is vital to know how much is planted and unplanted, since a larger proportion of planted land shows the corporation is fully using what it possesses to generate as much food as feasible.

2. Upstream or downstream?

An upstream company is focused primarily on generating raw crops from the land, whereas a downstream firm is focused on refining raw crops into higher-value items and selling them to customers.

Both sorts of enterprises have perks and downsides. An upstream corporation earns more money if prices are high for raw crops and commodities, but suffers from low-profit margins owing to its need to invest in a lot of land.

A downstream firm may offer higher-value items with bigger profit margins through branding and marketing, but this margin might be lowered if the cost of raw commodities and materials rise.

3. Analyse the yield

Yield is an essential parameter to gauge the success of a plantation enterprise. Fresh Fruit Bunch (FFB) yield is the statistic to watch out for while looking into palm oil plants.

While the palm oil business is one of the most prominent in Malaysia, others such as rubber, lumber, and tea continue to be popular with investors.

FFB refers to the uncooked fruit of the palm tree that is turned into crude palm and kernel oils. Typically, a mature palm oil farm delivers yields of 18 to 30 tonnes per hectare in a given year.

Every palm oil plantation firm releases FFB yield statistics in its quarterly and yearly reports. Objectively, individuals with high FFB are chosen since it suggests they are effective at developing new harvests from their present land.

That said, it might be the case that the corporation has low FFB yields because it has more immature property that could provide better returns in the future. You may start investing in them now to reap larger rewards next time.

4. Determine the company’s customers

It is crucial to know where the firm obtains money from, and how this is influenced by other nations. If the firm depends largely on a few nations for income, you need to undertake due diligence on the demand from these countries since events there might damage the financial performance of the organisation.

Palm oil firms typically sell internationally, with their top buyers being China and India. Other significant nations that import palm oil from Malaysia include Netherlands, Pakistan, Philippines, Turkey, and the United States.

It is usually better if the firm diversifies and distributes its palm oil to several nations so it will not be substantially impacted if sales to one country diminish, such as what occurred in 2020 with India’s boycott of Malaysian palm oil.

5. Examine its financial performance

You should study a company’s previous financial performance. Look for the essentials such as sales growth and profit margins, and consider assessing its balance sheet and cash flow status.

In terms of revenue growth, seek for a firm that has regularly expanded at a rate of 3-5% per year. Anything below this suggests the company’s prospects are diminishing.

Investors these days are increasingly searching for plantations that comply to environmental and ecological requirements.

Seek for firms with sustainable profit margins of roughly 10-20%. If its margins are fluctuating – for example, 30% this year, 2% next year – it suggests there are numerous unclear components, and you may want to give this firm a skip.

6. Certification

Being a plantation firm in today’s world isn’t simple since agricultural-based enterprises rely on natural resources such as land, soil, and raw food items, leading to sustainability problems.

Investors are increasingly turning towards Environmental, Social and Governance investment. It’s no longer simply about profit, but profit that comes from a sustainable basis and has little effect on the environment.

There are two certifications for palm oil companies you should look out for that assure the firm follows to environmental and sustainability criteria. The Roundtable on Sustainable Palm Oil (RSPO) accreditation is regarded the gold standard, while the Malaysian Sustainable Palm Oil (MSPO) certification is also good.

7. How to Invest in Malaysia Plantation Stocks

Here are most of the plantation in the KLSE main market of Malaysia.

There are quite a lot to choose from. All in all, there are at least 44 companies!

As usual, you do not want to pay a too high PE for the companies.

You can see that some are having are negative PE value. This should be because they are making losses. You want to avoid these companies too.

The PTBV also need to be reasonable. Anything above 3 is a bit high.

Some plantation stocks are giving quite a decent dividend yield also. Some even have double digit dividend yield of more than 10%. Again, please check the sustainability of this yield.

Name	Code	Price (RM)	PE	DY	PTBV	MCap.(Mil)
INNO	6262	1.45	5.89	15.17	2.13	694.34
FGV	5222	1.46	3.31	2.74	0.91	5326.3
KRETAM	1996	0.54	6.2	1.85	1.53	1256.92
BPLANT	5254	0.64	2.08	13.05	0.48	1433.6
TAANN	5012	3.58	4.02	8.38	0.91	1592.54
SOP	5126	2.5	3.26	2.67	0.69	2225.41
UTDPLT	2089	14.64	11.41	7.86	2.35	6094.17
SWKPLNT	5135	2.05	3.88	9.76	0.8	574
MHC	5026	0.91	3.32	6.59	0.59	178.86
KMLOONG	5027	1.68	11	8.33	1.91	1627.52
KLK	2445	21.64	10.04	4.62	1.73	23393.22
BKAWAN	1899	21.2	6.72	5.19	1.14	8470.15
FAREAST	5029	3.73	9.45	3.49	1.61	2215.02
HSPLANT	5138	2.25	5.7	7.56	0.93	1800
CEPAT	8982	0.65	3.11	4.62	0.51	206.99
SIMEPLT	5285	4.33	11.48	4.68	1.83	29945.04
IOICORP	1961	3.81	13.88	3.67	2.16	23946.61
TSH	9059	0.98	5.06	3.06	0.76	1354.17
CHINTEK	1929	8.22	7.48	5.11	0.92	751.01
GENP	2291	6.16	9.15	4.87	1.04	5527.73
JTIASA	4383	0.585	4.2	4.79	0.45	569.63
BLDPLNT	5069	8.75	11.07	0.57	1.13	818.13
PLS	9695	0.85	12.44	0	1.24	339.71
THPLANT	5112	0.425	6.26	3.53	0.55	375.64
SHCHAN	4316	0.35	4.51	0	0.4	102.51
UMCCA	2593	5.43	10.42	2.76	0.81	1139.05
RVIEW	2542	3.39	9.57	5.9	0.58	219.84
NSOP	2038	3.69	8.37	3.79	0.45	259.05
NPC	5047	1.88	8.09	0	0.42	225.6
RSAWIT	5113	0.145	17.39	0	0.81	296.05
GOPENG	2135	0.42	-65.66	3.57	0.62	169.47
INCKEN	2607	0.44	-21.88	0	0.28	185.13
MALPAC	4936	1.03	-33.35	0	0.45	77.25
KLUANG	2453	3.94	-26.33	0.8	0.36	248.9
TDM	2054	0.185	-23.43	3.46	0.45	318.73
AASIA	7054	0.115	-16.45	0	0.43	75.9
SBAGAN	2569	3.39	-11.27	2.06	0.37	224.87
HARNLEN	7501	1.68	-33.22	0	1.13	356.14
DUTALND	3948	0.26	-4.92	3.85	0.18	219.99
PINEPAC	1902	0.35	-6.65	0	0.27	52.43
GLBHD	7382	0.35	-3.52	0	0.2	78.02

Happy Investing! 😉