Book : The Quest – Energy, Security and the Remaking of the Modern World
The first book of the year 2012, The Quest – Energy, Security and the Remaking of the Modern World, written by the Daniel Yergin, a winner of Pulitzer Prize. This is one of the best books discussing and detailing the current state of global energy. With the present tension between Iran and Western countries which triggers the oil price increase to above $100 mark, it’s time to get acquaintance with the energy business.
Book : The Ascent of Money (Thai Translation)
I feel lucky that this book is translated to Thai. Studying the past helps us understand better about what’s happened today and probably allows us to see through what the future might be. In the messy financial world as we are in today, I highly recommend this book to everyone.
Univanich Palm Oil (5) – Final
Risks…
Obviously, weather is the main risk for Univanich and unfortunately it is beyond the company’s control. Severe drought can affect the average oil palm yields. The impact will be experienced in that drought year and up to two years after that as the oil palms produce fewer fruit bunches. The palm oil shortage crisis encountered early 2011 stemmed from the severe drought took place from December 2009 to May 2011.
World economic growth influenced the palm oil consumption. In recent years, strong economic growth in India and China drove the palm oil consumption. The opposite would also be true.
Changes in the legislation on mandatory use of biodiesel in diesel blends will impact the demand in crude palm oil. At the moment, Thailand is gearing up for a mandatory B5 biodiesel when the supply of feedstock is sufficient. Ministry of Energy announced in June to adopt B4 from July – September 2011 and will re-assessed the blending ratio after the feedstock supply level is reviewed later this year.
The planted area under the Chean Vanich concession of 14,241 rai is due to expire in 2013. The company would suffer loss if the Government decided not to renew all or part of the concession.
… Rewards
If your long term views are that the economic expansion in emerging economies leading by China and India will keep going well, oil price will remain stubbornly high, the uncertainty in Chean Vanich concession renewal will be resolved eventually and you have a stomach to see through unfavourable weather at some stages, Univanich might be a good candidate in your portfolio to ride on the energy-cum-food investment theme.
Although past financial performance showed wild fluctuation in net profit, the NPAT/FFB ratio was fairly constant at around 700 to 800 baht per tonne of FFB processed, barring the booming year of 2008 which saw the NPAT/FFB ratio reaching 1,665 baht/tonne.
With increasing in additional income from electricity generation, sales of seeds and seedlings, and CERs trading, the average NPAT/FFB ratio would improve. Meanwhile, the improvement in FFB production around Lamthap in the near future would lead Univanich to sanction the expansion of Lamthap factory to 90 t/h which would increase total FFB crushing capacity by one-third. Annual FFB processed would surpassed one million tonne mark and palm oil production could reach 200,000 tonnes per year.
On my base case’s assumption of NPAT/FFB of 1,000 Baht and annual FFB processed of 1,000,000 tonne, NPAT would be 1,000 MB. Given an expected dividend payout ratio of 80%, dividend paid per year would be 800 MB.
A simple PE ratio of 8 would value the company at 8,000 MB. While for the discounted dividend method assuming a WACC of 8% and no growth in dividend, the company would be worth 10,000 MB.
Given the current market capitalisation of 7,755 MB and barring severe deterioration in world economy, the company is fairly priced. The upside would come from strong CPO demand/price, production expansion and increase in revenues from other products.
Univanich Palm Oil (4)
Financial Performance
Table below summarises key financial metrics of Univanich in the last 4 years. Including also in the Table is the 2003 financial results, the year it was listed. Note that 2008 was the best year for Univanich and palm oil industry as a whole when CPO price rose over RM 4,000 per tonne in a response to crude oil price of $140 per barrel.
Let’s start with the revenue structure of Univanich. More than 90% of total revenues were derived from crude palm oil (CPO) and crude palm kernel oil (PKO) sales. The remaining was from sales of other products such as seeds, seedlings and electricity. Its products were sold domestically or exported through the deepwater seaport nearby its plants depending on the product price.
The annual production of CPO and PKO combined from 2007 to 2010 was relatively constant at approx 140,000 to 150,000 tonne, a 50% increase from 2003 production level as newly built Lamthap factory ramped up its production to its full capacity. Slight variations between 2007 and 2010 were mainly due to weather-related matter.
It is observed the volatility in the average selling price (ASP) of the combined CPO and PKO is high. In 2003, the ASP for combined CPO and PKO was 18.10 Baht/kg. It skyrocketed to a historic high of 39.04 Baht/kg in 2008 and settled at 29.46 Baht/kg in 2010. As a result there is no surprise to observe that its top lines were highly fluctuated as well.
The share of revenue from other products increased steadily from around 5% in 2003 to 8% in 2010 thanks to the ongoing investment in oil palm R&D and three biogas plants. In the Baht term, it rose from approx 100 MB to 343 MB or 18.8% compounded annual growth rate. In the future, added to its revenue would be the carbon credit trading of approx 100,000 Certified Emission Reduction credits (CERs) generated annually from its three biogas plants under the Clean Development Mechanism (CDM) scheme of the United Nations Framework Convention on Climate Change (UNFCCC). I expect the share of revenue from other products would continue to rise and this would help Univanich’s future performance insulated from the fluctuation in CPO price.
Its gross profit margin dwindled from 27.9% achieved in 2003 to 18.7% in 2010. This was attributable to the increase in FFB amount sourced from outside growers (80% to 85%). Although Univanich has constantly increased its oil palm plantation area, it is unable to keep pace with the increase in crushing capacity installed in 2001 and 2004 and still has to rely on FFB from growers nearby its plants. This trend is unlikely to change course and this would probably explain why Univanich invests so much in oil palm R&D. As it has to rely on outside growers, it would be better to supply them with high quality seeds and seedlings.
Its net profit margin declined from 20.4% in 2003 to 12.4% in 2010. This was caused by the reduction in GPM and increase in effective tax rate although offsetting by the improvement in cost control. The effective tax rate is expected to rise to 20% in 2011 because of the expiry of some BOI privileges.
|
2003 |
2007 |
2008 |
2009 |
2010 |
|
| Revenue (MB) |
|
|
|
|
|
| Domestic | |||||
| CPO |
1,003.25 |
849.14 |
1,410.20 |
2,528.08 |
2,507.28 |
| PKO |
35.07 |
0.00 |
28.46 |
265.42 |
164.20 |
| Other Products |
102.92 |
187.05 |
260.42 |
273.39 |
291.82 |
| Subtotal-Domestic |
1,141.24 |
1,036.19 |
1,699.08 |
3,066.89 |
2,963.30 |
| Export | |||||
| CPO |
617.23 |
2,573.60 |
3,906.61 |
612.94 |
746.65 |
| PKO |
196.05 |
862.25 |
1,202.50 |
195.27 |
549.63 |
| Other Products |
0.00 |
25.41 |
27.64 |
91.73 |
51.22 |
| Subtotal-Export |
813.28 |
3,461.26 |
5,136.75 |
899.94 |
1,347.50 |
| Total | |||||
| CPO |
1,620.48 |
3,422.74 |
5,316.81 |
3,141.02 |
3,253.93 |
| PKO |
231.12 |
862.25 |
1,230.96 |
460.69 |
713.83 |
| Other Products |
102.92 |
212.46 |
288.06 |
365.12 |
343.04 |
| Total Sales |
1,954.52 |
4,497.45 |
6,835.83 |
3,966.83 |
4,310.80 |
| Other Revenues |
4.67 |
8.93 |
17.99 |
21.42 |
18.16 |
| Total Revenue |
1,959.19 |
4,506.38 |
6,853.82 |
3,988.25 |
4,328.96 |
| Cost of Sales |
1,409.10 |
3,819.57 |
5,084.60 |
3,147.77 |
3,505.73 |
| Selling Expenses |
n/a |
n/a |
103.76 |
101.14 |
91.53 |
| Administrative Expenses |
n/a |
n/a |
57.66 |
36.23 |
52.03 |
| Mgmt Benefit Expenses |
n/a |
n/a |
46.52 |
39.00 |
41.12 |
| Total Expenses |
134.52 |
158.36 |
207.94 |
176.37 |
184.68 |
| EBIT |
415.57 |
528.45 |
1,561.28 |
664.11 |
638.55 |
| Finance Cost |
0.99 |
0.00 |
0.00 |
0.00 |
0.00 |
| Income Tax |
14.38 |
23.28 |
116.62 |
83.66 |
102.00 |
| NPAT |
400.20 |
505.17 |
1,444.66 |
580.45 |
536.55 |
| Outstanding shares |
94.00 |
94.00 |
94.00 |
94.00 |
94.00 |
| EPS (Baht) |
4.26 |
5.37 |
15.37 |
6.18 |
5.71 |
| Amortisation |
13.77 |
14.53 |
14.26 |
13.12 |
|
| Depreciation |
71.27 |
96.98 |
101.57 |
121.99 |
143.18 |
| Total CAPEX |
96.00 |
163.82 |
218.58 |
245.43 |
103.88 |
| Free Cash Flow |
375.47 |
452.10 |
1,342.18 |
471.27 |
588.97 |
| FCF/shares (Baht) |
3.99 |
4.81 |
14.28 |
5.01 |
6.27 |
| DPS |
3.50 |
4.00 |
11.50 |
4.50 |
4.50 |
| Dividends |
329.00 |
376.00 |
1,081.00 |
423.00 |
423.00 |
| Dividend payout ratio |
82% |
74% |
75% |
73% |
79% |
| Margins (%) | |||||
| Export/Total Sales |
41.6% |
77.0% |
75.1% |
22.7% |
31.3% |
| Gross Profit Margin |
27.9% |
15.1% |
25.6% |
20.6% |
18.7% |
| NPAT Margin |
20.4% |
11.2% |
21.1% |
14.6% |
12.4% |
| Expenses/Sales |
6.9% |
3.5% |
3.0% |
4.4% |
4.3% |
| Tax Rate |
3.5% |
4.4% |
7.5% |
12.6% |
16.0% |
| Production | |||||
| FFB Processed Capacity (t/h) |
90 |
135 |
135 |
135 |
135 |
| Actual FFB Processed (t) |
506,806 |
687,212 |
867,593 |
792,250 |
753,897 |
| Utilisation Rate (%) |
67.0% |
60.6% |
76.5% |
69.9% |
66.5% |
| PK Processed Capacity (t/h) |
5 |
8 |
8 |
8 |
8 |
| Palm Kernel Produced (t) |
28,817 |
38,057 |
48,120 |
43,162 |
40,152 |
| Utilisation Rate (%) |
68.6% |
56.6% |
71.6% |
64.2% |
59.8% |
| CPO+PKO Production (t) |
102,300 |
133,600 |
167,700 |
148,400 |
134,700 |
| Oil Extraction Rate (%) |
20.2% |
19.4% |
19.3% |
18.7% |
17.9% |
| Profitability | |||||
| CPO+PKO ASP (THB/kg) |
18.10 |
32.07 |
39.04 |
24.27 |
29.46 |
| CPO+PKO Sales/FFB (THB/t) |
3,653 |
6,235 |
7,547 |
4,546 |
5,263 |
| NPAT/FFB (THB/t) |
790 |
735 |
1,665 |
733 |
712 |
Book : The Economics of Food
During my trip back to Bangkok early 2011, I bought this fabulous book, The Economics of Food – How Feeding and Fueling The Planet Affects Food Prices, but could only complete it recently. The book is written by Patrick Westhoff, the co-director of the Food and Agricultural Policy Research Institute at the University of Missouri, and published in 2010. Although majority of the contexts are about what happened during 2005-2009, it’s still a must read in order to understand various factors behind the up and down of food prices.
Univanich Palm Oil (3)
Developments
Univanich was listed in Stock Exchange of Thailand in November 2003 after it abandoned its plan to list in Singapore Stock Exchange. Since listing, the company has transformed itself into a leading vertically integrated palm oil player in Thailand. It has invested in research and development in order to improve the quality of oil palm seeds and seedlings to support the growing oil palm industry in Thailand. With all these investments, now the company is capable of producing:
- 15 million germinated seeds per year
- 250,000 clonal oil palms per year
- 1,000,000 oil palm seedlings per year
Key developments over the last 10 years are summarised below:
|
Year |
Key Developments |
| 2001 | Expanded TOPI’s milling capacity from 30t/h of FFB to 60 t/h of FFB. Total milling capacity increased to 90 t/h of FFB. |
| Started planting oil palm at Lamthap and prepared to construct the third factory at Lamthap. | |
| 2002 | Abandoned plan to list in Singapore Stock Exchange. |
| 2003 | Listed in Stock Exchange of Thailand on 25 Nov 2003. |
| 2004 | Completed construction of new factory at Lamthap. Total milling capacity increased to 135 t/h of FFB. |
| Started constructing palm kernel crushing factory at Lamthap with crushing capacity of 3 t/h of palm kernel. 50MB was earmarked for this investment. | |
| 2005 | Completed construction of palm kernel crushing factory at Lamthap. Total palm kernel crushing capacity increased to 8 t/h. |
| 2006 | Expanded oil palm seeds production to 10 million seeds per year. |
| Completed building Tissue Culture Laboratory. | |
| Started construction of biogas plant at Siam and Lamthap factory (1MW each). | |
| 2007 | Purchased new 617.96 rai of oil palm plantation in Krabi for 37.6 MB. |
| 2008 | Started construction of third biogas plant at TOPI factory (2MW). |
| Completed construction of biogas plant at Siam and Lamthap factory (1MW each) | |
| Started expansion of biogas plant at Lamthap to 2MW | |
| Expanded oil palm nursery area in response to increasing demand in its seedlings. | |
| Purchased new lands at Cha-uat District of Nakornsrithammarat Province. | |
| 2009 | Completed 2MW biogas plant at TOPI factory. |
| Expanded biogas plant at TOPI factory to 3MW. | |
| Started building oil palm nursery at Cha-uat District (300,000 seedlings per year). | |
| 2010 | Completed expansion of biogas plant at TOPI factory to 3MW. |
| Completed building of new Tissue Culture Laboratory. Total production capacity increased to 250,000 clonal oil palms per year. | |
| Started commercial sales of seedlings from Cha-uat District. Total seedlings supplying capacity reached 1,000,000 seedlings per year. | |
| Expanding Univanich Oil Palm Research Centre due to be completed early 2011. Total production capacity of germinated seed will be increased to 15 million seeds per year. |
However, planned investment in increased factory capacity at Lamthap to 90 t/h was postponed as a result of low FFB supplied around that area.
Univanich Palm Oil (2)
Industry Overview
Oil palm was first planted in Thailand circa 1969 with Univanich as a pioneer in Krabi province. Since then the oil palm industry has developed into one of the major economic forces.
The pace of the growth was further accelerated in the past decade thanks to the first National Alternative Energy Development 2004-2011 and second Alternative Energy Development Plan 2008-2022 which promotes the use of biodiesel derived from crude palm oil. The latest plan calls for a mandatory production of B2 biodiesel and voluntary production of B5 biodiesel from 2008-2010. It indicates that from 2011 onward, B5 biodiesel production will be a compulsory and B10 biodiesel production would be available as an alternative. It forecast that B100 demand would be 3.02 million litres/day (ml/d) in 2011, rising to 3.64 ml/d and 4.50 ml/d over the period of 2012-2016 and 2017-2022 respectively. That equates to the annual CPO production of roughly 1,100 and 1,640 million tonne required just for the biodiesel sector alone in 2012 and 2017 respectively.
Although over the past 10 years, oil palm plantation area rose almost two folds and palm oil production increased sharply, the growth rate was subdued and increase in production to meet rising demand from biodiesel sector becomes more challenging in the past few years.
At the end of 2010, total harvested area for oil palm was approximately 3.55 million rai, a 10.36% increase over the past 5 years. Over the same period, total FFB produced rose from 6.715 million tonne to 8.223 million tonne, albeit crop yield per rai declined from 2,828 kg/rai in 2006 to 2,315 kg/ rai in 2010. And total crude palm oil production was stagnant at around 1,100 – 1,300 million tonne per year, far short of planned quantity required to produce 3 ml/day of B100 in 2011. The slow growth and low productivity are as a result of:
- Strong rubber price encouraging farmers to favour planting rubber over oil palm.
- Lack of suitable land for palm plantation. Land is too expensive.
- Irregular weather pattern adversely affected palm yields.
Table below summarises key statistics of palm oil industry in Thailand over the past 5 years.
| ThailandStatistics |
2006 |
2007 |
2008 |
2009 |
2010 |
| Plantation Area (million rai) |
2,954 |
3,197 |
3,676 |
3,889 |
4,077 |
| Harvested Area (thousand rai) |
2,374 |
2,663 |
2,885 |
3,187 |
3,552 |
| FFB Production (thousand tonne) |
6,715 |
6,390 |
9,271 |
8,163 |
8,223 |
| Yield per rai (kg/rai) |
2,828 |
2,399 |
3,214 |
2,560 |
2,315 |
| CPO Supply (thousand tonne) |
n/a |
1,207 |
1,661 |
1,453 |
1,425 |
| - CPO Production |
1,167 |
1,051 |
1,544 |
1,345 |
1,288 |
| - Opening Stock |
n/a |
156 |
89 |
108 |
137 |
| - Import Crude Palm Olein |
n/a |
0 |
28 |
0 |
0 |
| CPO Demand (thousand tonne) |
n/a |
1,207 |
1,661 |
1,453 |
1,425 |
| - Local Consumption |
n/a |
834 |
846 |
739 |
734 |
| - Export Refined Palm Oil |
n/a |
60 |
92 |
59 |
60 |
| - Export Crude Palm Oil |
n/a |
224 |
285 |
67 |
63 |
| - Biodiesel |
n/a |
0 |
330 |
450 |
500 |
| - Ending Stock |
n/a |
89 |
108 |
138 |
68 |
Sources: Office of Agricultural Economics and Univanich
Office of Agricultural Economics forecast that the harvested area will increase to 3.75 million rai in 2011. Total FFB harvested and CPO produced in 2011 would be 9.12 million tonne and 1.47 million tonne respectively.
Univanich Palm Oil (1)
At the onset of 2011 palm oil shortage crisis rocked Thailand. Due to the severe drought encountered in early 2010, the amount of fresh fruit bunch (FFB) reduced substantially in the latter half of 2010 which led to a skyrocketing of the price of domestic crude palm oil (CPO) to the unprecedented record level. Shortly after, cooking palm oil disappeared from the supermarket shelves before the Government untimely decided to import crude palm oil to restore the depleted CPO stock. The crisis, arriving at the juncture when the mandatory on increasing biodiesel blend from 2% to 5% was going to be implemented in early 2011, reinforces the scepticism on the food-for-energy policy. By all means, a few things have been proved. First, there is a strong demand for crude palm oil. Second, when the weather is bad the supply could be constraint. Thus this will likely support the product price at a high level.
Univanich Palm Oil, a leading oil palm grower and crude palm oil producer in Thailand, could be a beneficiary for the yet-to-be-unfold trend. Its palm oil plantation area of almost 40,000 rai (6,400 hectares) in Krabi produces over 100,000 tonne of fresh fruit bunch (FFB) annually feeding its three oil palm crushing mills with a combined milling capacity of 135 tonne of FFB per hour (1,134,000 tonne of FFB yearly). It also sourced about 85% of total FFB processed from outside growers to maximize the plant’s capacity. Over the past 5 years, Univanich processed averagely 750,000 tonne of FFB each year and produced approximately 150,000 tonne of crude palm oil and crude palm kernel oil per year which can be exported through its deepwater port at Laemphong, Krabi.
Table below exhibits historical key production statistics of the company.
|
2006 |
2007 |
2008 |
2009 |
2010 |
|
| Gross Plantation Area (rai) |
38,088 |
39,058 |
39,058 |
39,144 |
39,177 |
| Harvested Area (rai) |
34,607 |
34,607 |
34,408 |
34,160 |
35,121 |
| Total FFB processed (tonne) |
732,349 |
687,212 |
867,593 |
792,250 |
735,897 |
| - Owned FFB (tonne) |
128,161 |
101,707 |
150,904 |
114,876 |
110,385 |
| - Outside FFB (tonne) |
604,188 |
585,505 |
717,499 |
677,374 |
625,512 |
| Total Palm Oil Production (tonne) |
147,800 |
133,600 |
167,700 |
148,400 |
134,700 |
| - Crude Palm Oil (tonne) |
130,654 |
116,578 |
146,204 |
129,182 |
116,686 |
| - Crude Palm Kernel Oil (tonne) |
17,146 |
17,022 |
21,496 |
19,218 |
18,014 |
| Crop Yield (kg/rai) |
3,703 |
2,939 |
4,362 |
3,363 |
3,143 |
| Oil Extraction Rate (%) |
20.2% |
19.4% |
19.3% |
18.7% |
18.3% |
| - CPO Extraction Rate (%) |
17.8% |
17.0% |
16.9% |
16.3% |
15.9% |
| - PKO Extraction Rate (%) |
2.3% |
2.5% |
2.5% |
2.4% |
2.4% |
In addition, Univanich has its own Oil Palm Research Centre and Tissue Culture Laboratory. They are capable of producing 15 million germinated seeds and 250,000 clonal oil palms per year.
Interestingly, it joins the United Nation’s Clean Development Mechanism in an effort to reduce the carbon dioxide emission. All three biogas plants are registered under the scheme and have earned about 90,000 Certified Emission Reduction (CER) credits. The electricity generated is sold to EGAT under VSPP creating addition income stream for the company.
BANPU – On Centennial Coal Strategic Plan
Banpu acquired 100% of Centennial Coal for the total amount of approximately A$ 2.3 billion (equivalent to THB 67 billion then) in November 2010. It is the biggest investment in Banpu’s 27 years corporate history and has transformed Banpu into one of the ASEAN biggest coal producers expanding its footprint into the second largest thermal coal exporting country. This investment has reinforced Banpu’s long term strategic plan of focusing on coal business.
Last week Banpu has, for the first time since acquisition of Centennial Coal, released the strategic plan on its Australian coal operation. It outlined the growth plan and CAPEX going to be deployed over the next 5 years. This article will walk you through the plans and how these will shape up Banpu’s growth platform over the next 5 years.
Centennial Coal Assets
Centennial Coal operates 10 mines in NSW Australia from its two main geographic operations, Northern and Western Operation. It produced approx 15 million tonne of coal last year (on an equity basis) of which about 10 million tonne was supplied to power the generators in NSW. The remaining output was exported through Port Waratah, Port Newcastle and Port Kembla. Figure 1 illustrates the map of coal mines operated by Centennial Coal.
Figure 1 – Map of Centennial Coal’s Mines
As of 31 Dec 2010, Centennial Coal held 308 million tonne of coal reserve based on an equity basis. Based on the current production rate, the reserve life is approx 20 years. Illustrated in Figure 2 is the coal reserve (100% basis) at each mine.
Figure 2 – Coal Reserves
Future Growth
Future growth will be derived from two sources of organic growth i.e. volume and price growth.
As for the production volume growth, Banpu forecast its coal output will be gradually increased from 16 million tonne in 2011 to about 20 million tonne in 2015 (on an equity basis). It has earmarked almost A$600 million (present value) for the CAPEX from 2011 to 2015. Almost a quarter of the total amount will be used for development of a green-field coal mine at Newstan Lochiel. The mine will have a capacity of producing 4 million tonne of a mixture of semi-soft coking coal and high ash thermal coal with a minimum yielding of 79%. First production is targeted around 2014. Banpu will also endeavour to convert 150 million tonne of coal resources into reserves over the next 5-10 years.
In relation to potential price growth, the management has a firm strategy to negotiate with the local power generators, when the current contracts expire, for higher domestic coal price reflecting higher sales price when the coal is exported. Although the domestic sales price is not publicly disclosed, a clue inside the Ernst & Young Independent Expert’s Report (E&Y Report) revealed it is about $45 per tonne. At present, about two-third of the output is contracted to the local use. The company aims to maintain domestic sales at 40% – 50% of total production output with the remaining output exported. Table below summarises contracted domestic coal sales volume and potential export volume over the next 10 years as reported in E&Y report. Note that potential export volume might be sold domestically on new contracts which should fetch export-parity price.
|
Year |
Total Volume (Mt) |
Contracted Volume (Mt) |
Potential Export Volume (Mt) |
|
2011 |
16 |
12 |
4 |
|
2012 |
17 |
12 |
5 |
|
2013 |
16 |
10 |
6 |
|
2014 |
18 |
9 |
9 |
|
2015 |
20 |
5 |
15 |
|
2016 |
22 |
5 |
17 |
|
2017 |
21 |
4 |
17 |
|
2018 |
20 |
1 |
19 |
|
2019 |
20 |
1 |
19 |
|
2020 |
20 |
1 |
19 |
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