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Three Things To Like About Wilmar

Wilmar_logoWhen it comes to palm oil production, Wilmar International (SGX: F34) can show the rest of the farmers a clean pair of heels. It is, after all, one of the world largest producers of palm and lauric oil. And that is the first thing to like about Wilmar because size, or more precisely economy of scale, matters.

Wilmar’s impressive Asset Turnover is evidence of its economy of scale. At 1.1, the company is generating $1.10 for every dollar of asset employed in the business. By comparison the Asset Turnover for Golden Agri-Resources (SGX: E5H) is 0.5; for Indofood Agri Resources (SGX: 5JS) it is 0.4, and for Malaysia’s largest palm oil producer, Sime Darby (KLSE: SIME), it is 1.0. Wilmar also handily beats the Asset Turnover of 0.5 for the 30 companies that make up Singapore’s blue chip index, the Straits Times Index (SGX: ^STI).

The second thing to like about Wilmar is that it produces a consumable. In other words, once it’s gone then it’s gone. Palm oil is an edible vegetable oil, which is used in foodstuff, in detergents and in the production of biodiesel. Around 50 million tonnes of palm oil is produced annually and around 50 million tonnes is consumed every year. Most of the production comes from Indonesia and Malaysia. The largest consuming countries are India, Indonesia, China and the European Union.

The final thing to like about Wilmar International is the resilience of its Return on Equity. As a price-taker, Wilmar has little control over the selling price of palm oil on the open market. Consequently, its Net Income Margin can fluctuate depending on the prevailing price of the commodity. That said, its Return on Equity of around 9% closely matches the returns from some of Singapore’s largest companies. This implies that investors are earning $9 for every $100 of equity invested in the business, which is not at all bad.

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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.