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Three Facts Golden Agri Investors Need To Know

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Golden Agri-Resources (SGX: E5H) is a palm oil company with substantial operations in Indonesia. It’s a part of the Straits Times Index (SGX: ^STI), Singapore’s ubiquitous stock market benchmark that’s made up of 30 of the largest companies by market capitalisation listed here.

It’s also not the only palm oil related company within the STI – Wilmar (SGX: F34) is one such company that comes to mind, being the world’s largest processor of palm oil in addition to having palm-related products making up almost half of its sales for 2012.

Golden Agri has recently released an intriguing Sustainability Report 2012 which enables investors to know a lot more about what the company does and its efforts in maintaining the environment while in search of profits.

The report also comes at a good time after the recent forest-fire-induced haziness that was prevalent in late June this year.

The forest fires originated in Indonesia and were thought to be caused mainly by plantation companies that wanted to clear large swathes of forests quickly. This naturally cast a bad light on Golden Agri-Resources given its large presence in Indonesia but the company has been on the record stating that it is “absolutely against burning”.

According to the sustainability report, Golden Agri’s primary business activities are conducted in Indonesia and China. In the former, they include “cultivating and harvesting oil palm trees; processing of fresh fruit brunches into crude palm oil and palm kernel; crushing palm kernel into palm kernel oil and palm kernel meal; and refining crude palm oil into value-added products such as cooking oil, margarine and shortening.”

In the latter, Golden Agri’s operations include “a deep-sea port, oilseed crushing plants and production capabilities for refined edible oil products as well as other food products such as noodles.”

Besides this brief introduction about the company, here are some facts that Golden Agri’s investors should know:

1) Golden Agri’s Business Model in Indonesia and China

The first chart below details the company’s business model in Indonesia (data as of Dec 2012):

3 facts golden agri chart 1

Source: Golden Agri-Resources’ Sustainability Report 2012

And next, a chart showing the company’s business model in China (data as of Dec 2012):

3 facts golden agri chart 2

Source: Golden Agri-Resources’ Sustainability Report 2012

2) Golden Agri’s Share Price is strongly linked to Crude Palm Oil Prices

Given the importance of palm oil in Golden Agri’s business model, it’s not a surprise to see some strong links between its share price and that of CPO prices. After all, the company’s known as a price-taker – it’s mostly unable to control the prices of its core palm-oil-related products. So, its profits are dependent upon the prevailing CPO prices.

That also means that an investor has to take note of the future trend of CPO prices when evaluating the company’s intrinsic worth, which is not easy to accomplish given the general unpredictability of macroeconomic trends.

This is a chart showing the percentage change in price for CPO and Golden Agri’s shares – in addition to highlighting the strong links between the two figures – using their respective prices at Jan 2008 as the base:

3 facts golden agri chart 3

Source: Google Finance (for Golden Agri’s share price) & Indexmundi (for CPO prices)

3) Golden Agri’s commitment to Sustainability and Environmental Protection

Big palm oil-buyers are increasingly favouring the purchase of palm oil that’s grown in an environmentally sustainable way. For example, Unilever (NYSE: UL), one of the world’s largest purchasers of palm-oil, accounting for about 3% of global volume, has a pledge to purchase all of its palm oil from sustainable sources by 2020.

In that regard, Golden Agri has been active in obtaining certifications on the sustainability of its palm oil plantations from the Roundtable on Sustainable Palm Oil (RSPO), an internationally-recognised non-profit organisation whose aim is to promote the growth and use of sustainable palm oil.

As of 30 June 2013, Golden Agri has 11 mills and 121,122 hectares of plantation that has received RSPO certifications. The company has a goal of eventually obtaining RSPO certifications on its existing 433,200 hectares of plantations and 42 mills (as of June 2010) by Dec 2015. Additional palm-oil operations established after June 2010 will have a different timetable in terms of obtaining RSPO certification.

Golden Agri is also actively minimising the use of chemical pesticides and water resources as much as possible, in addition to efforts in preserving forests and endangered species.

Foolish Bottom Line

There is a lot more to learn from the company’s Sustainability Report 2012 about its efforts in ensuring its palm-oil operations are sustainable for the environment.

As citizens of the world, it is also great to know that companies like Golden Agri are trying hard not to leave behind permanent ‘scars’ on the Earth while in search of profits so that our descendants can have a better tomorrow.

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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 contributor Chong Ser Jing doesn’t own shares in any companies mentioned.