THE INVESTMENT APPROACH OF CALVIN TAN

WHY WHEN CPO PRICES ARE HIGH UPSTREAM PALM OIL PLANTERS WILL DO FAR BETTER THAN DOWN STREAM PALM OIL COMPANIES, Calvin Tan

calvintaneng
Publish date: Thu, 22 Feb 2024, 12:20 AM
calvintaneng
0 1,831
Hi Guys,

I have An Investment Approach I which I would like to all.

Dear friends of i3 Forum,


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


Product image [BELI 2 BOTOL DAPAT RM29.90 SEBOTOL] Minyak Masak 5kg Cooking Oil AURA (PRODUK MUSLIM)





[BELI 2 BOTOL DAPAT RM29.90 SEBOTOL] Minyak Masak 5kg Cooking Oil AURA (PRODUK MUSLIM)
No Ratings Yet
1
Sold
Report

Price Section

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.

More articles on THE INVESTMENT APPROACH OF CALVIN TAN
Discussions
1 person likes this. Showing 14 of 14 comments

calvintaneng

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

2024-02-22 00:33

calvintaneng

One more thing

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

2024-02-22 01:11

calvintaneng

And additional highlight

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

2024-02-22 02:49

EngineeringProfit

No matter what I say....Still tak laku in Europe

2024-02-22 05:06

calvintaneng

Palm oil main Buyers are from India (1.35 Billion people) China (1.4 Billion people)
Others are Bangladesh, Pakistan, Middle East

2024-02-22 05:07

calvintaneng

More results out show we are CORRECT

Both Simeplant & IOI Corp reported less profits due to high Cpo prices because they have to purchase Feedstock at higher cost

So downstream not doing well

AND INNOPRISE PLANT REPORTED GOOD RESULTS PLUS A GENEROUS 4TH INTERIM DIVIDEND!
https://www.bursamalaysia.com/bm/market_information/announcements/company_announcement/announcement_details?ann_id=3423807

ALSO FAST EAST ALSO REPORTED GOOD RESULTS!

https://www.bursamalaysia.com/bm/market_information/announcements/company_announcement/announcement_details?ann_id=3423886

THAT IS WHY GO FOR UPSTREAM PALM OIL LIKE JTIASA, THPLANT, HS PLANT & OTHERS

2024-02-23 18:35

calvintaneng

Plus our Singapore Palm oil Bumitama is up today

Unaffected by the sell down in Malaysia

https://sgx.i3investor.com/servlets/stk/p8z.jsp

So next week just collect while cheap

2024-02-23 18:46

calvintaneng

Another good proof

Singapore Palm Oil Goldenagri also up

https://sgx.i3investor.com/servlets/stk/e5h.jsp

2024-02-23 18:46

calvintaneng

RIMBUNAN SAWIT (5113) THE FOCUS IS ON: ITS DEEPLY UNDERVALUE PALM OIL ASSETS NOW IN HOT DEMAND, Calvin Tan

https://klse.i3investor.com/web/blog/detail/www.eaglevisioninvest.com/2024-03-14-story-h-186428885-RIMBUNAN_SAWIT_5113_THE_FOCUS_IS_ON_ITS_DEEPLY_UNDERVALUE_PALM_OIL_ASSE

2024-03-14 22:39

muzammil80

nice lesson ..thanks😉

2 months ago

calvintaneng

welcome

now see this

IF MKHOP IPO IS WORTH 62 SEN WITH P/E 20.3: THEN TSH RESOURCES WITH P/E 16.56 SHOULD BE RERATED FROM RM1.14 TO FAIR PRICE OF RM1.40, Calvin Tan


https://klse.i3investor.com/web/blog/detail/www.eaglevisioninvest.com/2024-04-24-story-h-182879779-IF_MKHOP_IPO_IS_WORTH_62_SEN_WITH_P_E_20_3_THEN_TSH_RESOURCES_WITH_P_E_

2 months ago

calvintaneng

Just noticed in TSH ANNUAL REPORT

The Group is predominantly an upstream player in the oil
palm industry

TSH IS PURE UPSTREAM
BEST TO BENEFIT FROM HIGH CPO PRICES

1 month ago

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