This evening we will post our reasons WHY PALM OIL UPSTREAM PLANTERS WILL BENEFIT MORE THAN DOWN STREAM PALM OIL COMPANIES WHEN CPO PRICES ARE HIGH.
Let us illustrate by these EXAMPLES
There was a time when Cost of Cpo production was Rm1,600 a metric ton. And Market price for CPO was Rm2,400 MT and a 5KG Cooking Oil cost Rm19.90
Above scenario tells us Pure Upstream planters (involve in FFB harvest ) will lose out to Down Stream Palm oil Companies that process FFB & CPO into Cooking Oil for sale
Why Upstream no good and down stream better when Cpo prices are low at Rm2,400 Per Metric Ton
OK Let us do a calculation
1. THE UPSTREAM PLANTERS LIKE JAYA TIASA, INNOPRISE PLANT, BPLANT, THPLANT, TSH RESOURCES, UTD PLANT AND MANY OTHERS ONLY PLANT AND HARVEST FFB (Fresh Fruit Branches) For Sale
Cost of Cpo Production Rm1600
Selling at Rm2,400
Profit is 2,400 minus Rm1,600 = Rm800
Rm800 divides by Cost Rm1,600
= 50% Gross Profit (Fertilizer, labour overhead not included)
2. THE DOWNSTREAM PALM OIL COMPANIES THAT PURCHASE FFB & PROCESS THEM INTO COOKING OIL AND OTHERS FOR SALE TO CONSUMERS LIKE YOU AND ME IN SUPERMARKETS, MINIMARTS & HYPER MARKETS
Their Cost of Purchase Rm2,400 Per Metric
Cost is Rm2.40 per litre (kg)
So in 5 Litre Plastic Bottle
it will be Rm2.40 cost X 5
= Rm12.00 for 5 Kg
And before MCO lock down they Sell a 5Kg Bottle cooking oil for Rm19.90
Now Sale is Rm19.90
Cost Rm12.00
Gross profit?
Rm19.90 less Rm12.00
= Rm7.90
Divide by Cost Rm12.00
So Rm7.90/Rm12.00
= 65% Gross profit
DO YOU "SEE" THE DIFFERENCE?
Planters gross profit = 50%
Processer into Cooking Oil gross profit = 65%
So from above we "SEE" that when prices of Palm oil is cheap companies like Wilmar, KLK, Batu Kawan, IOI CORP and others in Downstream are doing well. Those in upstream after deducting cost plus paying off bank loans are fairing less well
NOW SEE THE NEW SCENARIO WHEN CPO PRICES ARE HIGH LIKE NOW SEE
CRUDE PALM OIL FUTURES
Market closed
Continuous contract
FCPO1!
Bursa Malaysia
3857
AND COST LIKE TSH AT RM2,000 TO RM2,200 PER TON
COST PRICE TO PRODUCE RM2200
SALE PRICE RM3,857 PER TON
Profit is Rm3,857 less Rm2200
= Rm1,657
Divide Rm1,657 by Rm2200
= 75.31%
So Palm Oil Up Stream now make 75.3% Gross Profit (Last time only 50% Gross)
Now See Down Stream
Cost of Cpo Purchase Rm3.857 per litre
5 Litre of 5 Kg Cooking Oil Cost
Rm3,857 x 5
= Rm19.28 (Cost of 5Kg Cpo Production cost for Downstream)
New Selling Price After MCO RM29.90 per 5Kg Litre)
See
[BELI 2 BOTOL DAPAT RM29.90 SEBOTOL] Minyak Masak 5kg Cooking Oil AURA (PRODUK MUSLIM)
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RM30.90
Wholesale
Buy (>=2) RM29.90
SEE
TO QUALIFY FOR RM29.90 (YOU MUST BUY 2 BOTTLES 5 KG COOKING OIL)
OKOK
So they sell on Offer at Rm29.90
So Rm29.90 less Cost of Production Rm19.28
So Rm29.90 less Rm19.28
= Rm10.62
= 10.62/19.28
= 55%
Now we "SEE" their Previous Gross Profit 65% now dropped to 55%
So Downstream are making less money
But that is not all
UPSTREAM IS SO VERY VERY VERY EASY
HARVEST FFB AND SELL (VERY CLEAN AND FAST DEAL)
DOWNSTREAM?
THEY NOW FACE HIGH COST OF PLASTIC BOTTLES, PAPER LABELS, ADVERTISING COSTS AND OTHERS WHICH FURTHER EAT INTO THEIR PROFITS
WHILE UPSTREAM SELLS CPO AT RM3800 TO RM3900 FOR FAST CASH TURNOVER
DOWNSTREAM FACE COST PUSH AND COST PASS THROUGH PROBLEMS
WHY?
THEY RESIST PAYING MORE LAH!
SUPERMARKETS/HYPERMARKETS WILL TRY TO KNOCK DOWN PRICES AS CONSUMERS HOLD BACK PURCHASES DUE TO HIGHER COST
SOME GET DELAYED PAYMENT AS WELL
SO WHEN CPO PRICES ARE HIGH WHAT SHOULD WE DO?
WE SHOULD GO FOR PURE UPSTREAM PLAYERS LIKE JAYA TIASA, HS PLANT, BPLANT, IJM PLANT, THPLANT, TSH RESOURCES, INNOPRISE PLANT AND OTHERS
THAT"S IT
WHAT ARE THE OTHER FACTORS THAT WILL HELP PALM OIL COMPANIES?
1) WHEN RINGGIT GOES DOWN AGAINST USD THEN PALM OIL WILL FURTHER OUTSELL SOYOIL, CANOLA OIL AND OTHER RIVAL OILS PRODUCED IN HIGH CURRENCY NATIONS
2) AND PALM OIIL COMPANIES SHOULD WORK HARDER TO HARVEST EVERY FFB POSSIBLE
WE HEARD IN SARAWAK PALM OIL HARVESTERS START WORK AT 6AM AND END AT 2PM
NOW SOME ARE GIVING INCENTIVE AND OVERTIME PAY TO TELL HARVESTERS TO WORK TILL LATE IN EVENING AS TO INCREASE COLLECTION
END RESULT WILL BE HIGHER FFB HARVESTED
3) GO FOR THOSE WITH THE BIGGEST PALM OIL HOLDERS OF 200,000 ACRES TO 1 MILLION ACRES BEST
THE BIGGER THE BETTER AS THEY OWN VERY LARGE LARGE LANDS LIKE THPLANT WITH 240,000 ACRES OR 3 TIMES THE SIZE OF PENANG ISLAND AT 72,900 ACRES
4) AFTER MAKING LOTS MORE MONIES PALM OIL COMPANIES SHOULD DECLARE HIGHER DIVIDENDS
When KLK Started Giving Ever Increasing Dividends for a Whole Decade of 2004 to 2014 Its Share Price Rose From Rm4.00 to the High Of Rm26.00
And when INNOPrise Plant Increased its Dividends Payout Its Share price jumped from 50 sen to Rm1,50
SO PALM OIL COMPANIES IN GOOD TIMES SHOULD REWARD SHAREHOLDRS
AND SHAREHOLDERS WILL STAY FAITHFUL TO GIVE THEIR SUPPORT!
That is all for now
HAPPY INVESTING
Warmest regards
Calvin Tan
Please buy or sell after doing your own due diligence or Call Up Captains of Palm oil Companies to check up with them all.
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More articles on THE INVESTMENT APPROACH OF CALVIN TAN
Cost of Cpo production jumped from Rm1600 to Rm2200 all due to 2 main factors
1. High cost of fertilizer 30% to 35% of production cost
Now Nitrogen fertilizer ( natural gas down by 80%) plus automation will also save on labour cost the cost of cpo production can then come down below Rm2000 and will translate into higher profits
We are talking about Gross Profit 80% more or less if Cpo is Rm3800 but if Cpo goes up to Rm4000 to Rm4200 then gross profit can rise to 100%
and from gross profit we have to deduct other expense like tax, Impairment and other cost and final cost which then give a final net net profit of 30% to 50% or more depending on more or less inefficient ones
Overall with new high level of Cpo price range of Rm3500 to Rm4200:upstream palm oil companies are doing very well
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
![Product image [BELI 2 BOTOL DAPAT RM29.90 SEBOTOL] Minyak Masak 5kg Cooking Oil AURA (PRODUK MUSLIM)](https://down-my.img.susercontent.com/file/my-11134207-7r98x-lmo6jhoi0pli40)
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Blog: Reposted Article: OIL PALM STOCKS IN Bull Run Time: Those Prepared with Biggest Capacity Will Always Excel More Than Others, Calvin Tan
https://klse.i3investor.com/web/forum/forum-thread/600622097#google_vignette
2 months ago