Art of Investments


Publish date: Mon, 30 Nov 2020, 09:03 AM

For the past 2 weeks, companies have been busy reporting their quarterly results and one company that reported their results yesterday got me very excited. After researching into the company, i got even more excited and am quite sure that this is a truly undiscovered gem.

The name of the company is APB Resources Berhad.

A quick check on what APB does - they manufacture equipment for the petrochemical and palm oil industries. I also found that APB's profits are very strongly correlated to the crude oil and palm oil prices. When crude oil and palm oil prices surge, APB's profits also surge. This makes sense because petrochemical and palm oil companies spend a lot more on CAPEX when crude oil and palm oil prices are high. 

In 2019, APB did very badly and this is not surprising since crude oil and palm oil prices were extremely low. Below are comments made by the chairman in APB's 2019 annual report:



With the quarterly results released yesterday, we can now see what management is talking about. Palm oil prices have surged by more than 60% over the past year and crude oil prices have surged by more than 50% in the past few months. I believe that orders from palm oil players surged due to the strong palm oil prices, leading to APB recording their strongest quarterly profit in 5 years.

With economies reopening and vaccines developed, commodity prices should surge as demand increases. We have already seen prices of commodities such as palm oil, crude oil, aluminium, steel and many more surging or starting to surge. One of the most famous investors of all time, Warren Buffett, even made a USD6 billion bet into commodity-related companies as seen below. He is obviously betting on commodity prices surging when Covid-19 subsides and economies start growing aggressively again.



Below are charts and data showing how correlated APB's earnings and crude oil/palm oil prices are:

Crude oil:


Palm oil:


APB's historical profits (table shows Year / Revenue / Profit):


Crude oil and palm oil prices surged from 2005 to 2009 before collapsing in 2009 due to the global financial crisis. Both commodity prices also surged from 2010 to 2015 before collapsing in 2015. Here, we can also see APB's profits surging from 2005 to 2009 and from 2010 to 2015.

Another very interesting finding made is that APB paid very generous dividends when they were very profitable back then. They paid 6.5sen per year! With commodity prices starting to surge, 6.5sen in dividend at the price now of RM0.45 will translate to 14.4% dividend yield! The company also has zero borrowings and a ridiculously large amount of cash at RM0.495 per share.

RM0.495 in cash per share, 14.4% dividend yield, low single digit PE - it is a matter of time before this gem gets discovered and once discovered, the share price should go back to what it used to be at RM1.50 to RM2.



UPDATE: Since recommending this stock at RM0.45, the share price has doubled to a high of RM0.92 and I would suggest that you do not be greedy and take profit at these 90sen levels.




Related Stocks
Market Buzz