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Singapore’s “Flyer” Of The Week: Mewah International

mewahSingapore’s “flyer” of the week spotlight falls on the country’s ninth-largest quoted palm oil company Mewah International (SGX: MV4). The shares climbed almost 8% to S$0.49 this week.

Mewah produces Refined, Bleached and Deodorised (RBD) palm oil. It is also involved in soya bean oil, canola oil, sunflower seed oil and corn oil production too. What’s more it is vertically integrated – it sources, processes, packs, merchandises and even distributes the various oils. Its brands include Oki, Mona and Krispi.

Last week, Mewah reported a 14% drop in revenues for the first three months of the year, even though sales volumes jumped 9%.  That would suggest that the company had faced severe pricing pressure, which it confirmed. The average selling price fell  22% to US$618 per metric tonne. Mewah said as palm oil prices remained low, it witnessed some revival in demand from customers including interest in the bio-fuel sector.

That said, Mewah, which is valued at around S$700m, was able to wring greater efficiencies from its Malaysian refining operation. The operating profit improved by almost 12%. However, its overall results were hurt by pressure on its downstream consumer pack business.

Worryingly, the company said palm oil prices are likely to remain low. Nevertheless, it is not sitting on its hands. It is taking advantage of the lull in the market to increase its palm oil refining capacity in Malaysia. It is also pushing ahead with its dairy plant investment, which was first flagged up in 2011 at a cost of US$49m.

Thing is, palm oil producers, in common with most other commodity suppliers, are price takers. They have little or no control over prices, which means they are, by and large, forced to accept what is offered on the market. When demand is high, commodity companies can make extraordinary profits. However, when demand is soft, they get hurt. That is unless they have another string to their bow.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.