Saturday, August 1, 2015

Commodity super down cycle? - Part 1

Noble Group crash of more than 30% in a week is the trigger for me to look commodity again. I have initially wanted to take a punt on Noble Group as I thought even with the write down on its Yancoal assets, it is trading at too heavy a discount to NAV. But the search lead me to somewhere else.

Some pictures first.

With the exception of First Resources (The third is Olam, Name got cut off), all counters have experienced a drop of at least 50% from its peak.

Golden agri and First resources were on my radar, both show a deterioration of earnings due to the weak CPO price, but First resources was incredibly resilient. It was better plantation profile and the "growth" in production might be the reason why the company holds up well. The growth in production would have somewhat offset the weakness in price.

I then went on to take a brief run using Bloomberg on the companies earnings, balance sheet and cash flow. Do note that Bloomberg numbers are not always 100% accurate, but it serve as a good preliminary screen nonetheless.

I was then drawn to the fact that Wilmar has rather resilient positive FCF, and given the bulk of Wilmar's earning still come from palm oil. I decided to look further. I check the ARs Wilmar and the +ve FCF is correct. They have also start to reduce their debt. 

Going back to the previous point about plantation profile, while Wilmar did not have as young a profile of plantation as First resources, it is still younger than Golden Agri and they deliberately show the profile of 15-17 years old (Still prime but going beyond 18). 

First picture belong to First Resources,then Wilmar and lastly Golden Agri.

I also saw clear possible "growth engines" in terms of the consumer production (Its profits has been growing for the past 5 years), especially since they have now acquire Goodman Felder. The impact of this acquisition will show in the 2Q.

Given that Market "might" be correcting in the weeks ahead , possibly due to worsening of Malaysia's Situation having a knock on impact on Singapore, I decided I will read up more on Wilmar and will update accordingly when my research is done. 

Only bug again is the low dividend of 2.5%.


  1. In my previous job, I did some research on commodities for a project and it did led me to thinking about investing in them. But there are quite a number of risks faced by a commodities company that I decided not to go ahead.

    1. Hi Joyce,

      Thanks for your reply. Do you mind telling me what are some of the risks that cost u to back off??

    2. Hi SI,

      The nature of the contracts which was what Noble is being attacked for, the very small margin they have and then for fully integrated or players who have production.. Mother Nature herself is a force to be reckoned with...the FX considerations especially now when currency war seems to be waging and the list goes on...

    3. Hi Joyce,

      Thanks for your input. I am still trying to figure out the actual problems with Noble.

      Its good to see things from more than 1 angle.

      Maybe we need more blood to be shed? Also, while there is risks, I certainly do not agree with what some forummers said that noble is a fraud la... Overkill

  2. I get tips from both your blog as well as Epic Research Private Limited but i am looking for high quality news.

  3. Do you need to increase your credit score?
    Do you intend to upgrade your school grade?
    Do you want to hack your cheating spouse Email, whatsapp, Facebook, instagram or any social network?
    Do you need any information concerning any database.
    Do you need to retrieve deleted files?
    Do you need to clear your criminal records or DMV?
    Do you want to remove any site or link from any blog?
    you should contact this hacker, he is reliable and good at the hack jobs..
    contact : cybergoldenhacker at gmail dot com