Wisdom Wise

One For 2014 Buy Hold and Monitor

Ben Gan
Publish date: Tue, 24 Dec 2013, 01:52 PM
Ben Gan
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Palm oil is the cheapest edible oil among other edible oils like Sunflower, Rapeseed and Soya oil. This is because on the same acreage of land, the production of palm oil is several times more than that of the other oils and not because it is inferior to them in anyway. 

People all over the world consume palm oil daily. Much of the usage is in the food industry. Being a versatile oil, it is also used as biodiesel and the manufacturing of products like soap, detergent, shower cream, shampoo, candles, nylon strings, vitamins, and other cosmetic and pharmaceutical products. 

Oil palm biomass is also useful. It can be turned into biofuel, fiberboard, pulp and paper, and fertilizer. 

Demand for palm oil is envisaged to grow in tandem with the world's population growth. This coupled with innovation for palm oil has resulted in the crop having an excellent future. 

All oil palm plantations (except the very small ones) have one thing in common. They all need palm oil mills. These mills are necessary to extract palm oil from fresh fruit bunches (FFB). 

One company that has the expertise and experience to supply, install, build and maintain these mills is listed in Bursa. In fact it is the only listed company in Bursa that has this technology. 

Not all palm oil mills are the same. Modipalm Engineering Sdn Bhd (MESB) working in close cooperation with Malaysian Palm Oil Board (MPOB) has devised a system known as the Continuous Sterilization System to extract oil from FFB efficiently. This is the latest new technology that is much favored by oil palm plantations. 

The main advantages of this system is higher oil extraction and lower labor cost when compared to the conventional type of palm oil mills. To date, MESB has built some 80 such mills. 

MESB is not a listed company, but its parent company, CBIP is. In September 2013, CBIP announced that MESB has been awarded by PT Rafi K.A., a subsidy of TDM Berhad to construct  a 60 tones per hour Continuous Sterilization Palm Oil Mill (CSPOM) and to deliver 3 units of Double Deck Continuous Sterlization System at a total cost of RM53,304,400.

In October 2013, MESB made another announcement which said that PT Windu N.A. of Indonesia had awarded letters of award to it to construct a 60 tones per hour CSPOM at the cost of RM33,001,088. 

The management of CBIP says that these contracts will contribute positively to earnings for the financial years 2013, 2014 and 2015.

While these contracts are not really that big, it does show one thing. It shows that Modipalm Continuous Sterilization System is efficient and competent and in demand. This augurs an excellent future stream of profits for CBIP.

In plantation, CBIP has 70,088 hectares of land. Most of these lands are in Indonesia. Presently only 10,426 hectares are planted. 

Other businesses of CBIP are: Special Purpose Vehicles and Steam Energy.

Fundamentally speaking, CBIP has a strong balance sheet and pays regular dividends. At the present price of RM3.20 plus, this stock is good to buy, hold and monitor. I am long on stock and intend to accumulate more.

As usual, you listen to me at your own risk. 

To all my readers, I wish them, Good Luck, Good Profits, Merry Christmas and Happy New Year. 



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