The Strategic Location of the Estates
FAREAST owns 9 estates of different sizes located close to each other in the state of Pahang and 2 newly acquired palm oil mills. Geographically, their estates are mainly concentrated in the district of Keratong, Rompin. The concentration of these estates provides important competitive advantages in terms of economy of scale and cost savings. Moreover, Pahang still offers good opportunities for new land expansion.
Strong Financial Status
Investors must continue to monitor the company’s performance by at least keeping abreast with their financial results. Based on FAREAST’s past 5 years’ financial statements, we can see that the company’s financial status has been growing stronger each year. The earnings per share (EPS) improved from
5.5 sen (adjusted for bonus) in 2001 to 24.9 sen in 2005. Current ratio is now at 12.64 times, with a strong cash position. Dividend yield has been on a rising trend to 4.4% in 2005. A few other items to take note from the Balance Sheet are the long-term and short-term loan amount compared to the shareholders’ equity and the current assets.
Conclusion
One important consideration before investing in any company is to understand the businesses that the company is in. As a company that produces commodity, be it oil palm, timber or steel, it is certain that the company’s revenue and profits are sensitive to the relative commodity prices. Therefore, investors should be aware of the prospects of the related commodity market. The Malaysia palm oil market has been growing steadily for the past few years and the country continues to be the world’s largest exporter of palm oil exporting 51% of world palm oil market. The production of crude palm oil continued to increase for seven consecutive years reaching 15.0 million tonnes in 2005. The growth rate for 2005 was 7.1%. Besides increasing production, the crude palm oil prices have been performing well too. The average CPO price of RM897 in 2001 has improved to RM1390 in 2005. And the highest was RM1658 in 2004.
The industry is also well supported by the Government. The Malaysian Palm Oil Board (MPOB) has done a good job in recent years by introducing new technologies and palm-based products, developing cost-effective milling and refining techniques, improving yields and eradicating diseases.
One important development has been the commercialization of palm oil-based biofuel at a global level. Palm oil has distinct advantages over other renewable resources such as rapeseed, soy bean, and sunflower oil in terms of price competitiveness as well as stock availability. The Malaysian Government has in August 2005 formulated the National Biofuel Policy to provide guidelines on biofuel usage and to encourage the growth of the biodiesel industry in Malaysia.
All the factors mentioned above have contributed to FAREAST’s successes in enhancing shareholder values. Again, it has been proven that market rewards companies with strong balance sheet and quality management like FAREAST.
Financial Highlights (as at 31 December 2005)
Year |
2001 |
2002 |
2003 |
2004 |
2005 |
Turnover (RM million) |
41.2 |
57.9 |
70.9 |
80.4 |
71.32 |
| Profit before taxation (RM million) |
12.6 |
32.6 |
49.2 |
63.09 |
50.20 |
Profit after tax (RM million) |
7.8 |
23.7 |
33.1 |
44.1 |
35.3 |
Minority Interest (RM million) |
(1.0) |
(1.9) |
(1.8) |
(3.5) |
(2.4) |
Net Profit for the year (RM million) |
6.8 |
21.8 |
31.3 |
40.6 |
32.9 |
Net tangible assets per share (RM) |
5.37 |
5.06 |
5.29 |
5.73 |
3.55 |
Current ratio |
3.51 |
7.59 |
6.78 |
16.80 |
12.64 |
Pre-tax profit as a percentage of turnover (%) |
30.61 |
56.33 |
69.36 |
78.46 |
70.39 |
Pre-tax profit as a percentage of shareholder equity at year end (%) |
3.81 |
10.30 |
14.49 |
16.91 |
10.61 |
| 
