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An Important Difference between Indofood Agri Resources and Bumitama Agri That Investors Have To Know

palm fruit

When it comes to commodity companies, how can investors tell them apart? At first glance, these companies seem to produce the same products, sell to the same market, and are equally affected by the relevant commodity prices.

But, a different picture emerges if we take a look underneath the hood. Let’s take  Bumitama Agri (SGX: P8Z) and Indofood Agri Resources (SGX: 5JS) as an example; both are palm oil outfits listed in Singapore.

A pure-play producer vs. an integrated player

Although both companies are in the oil palm industry, their business models differ greatly from each other.

Bumitama Agri is an upstream player in the industry. Its focus is on running oil palm plantations in Indonesia and the production of crude palm oil and palm kennel oil in the country. The company currently has a total planted area of about 150,000 hectares and a palm oil milling capacity of about 3.06 million tons per year.

Amongst other large plantation owners in the region, Bumitama Agri’s palm oil trees have one of the youngest age profiles. Currently, around 70% of Bumitama Agri’s trees are below the prime-age for palm oil production (the prime age is between 8-17 years); that’s an amazing profile as it means the company could have many years of production growth ahead with its trees maturing and entering the prime production age.

Indofood Agri Resources on the other hand is a more complex company. It has multiple partially-owned subsidiaries and joint ventures which produce most of its revenue and earnings. Apart from its oil palm plantation and mills, it also refines up to 1.4 million tons of crude palm oil annually.

The company currently manages about 240,000 hectares of plantation and operates about 22 palm oil mills. It also produces and markets palm oil-related consumer products such as cooking oil, margarine, shortening, and other palm oil derivative products. On that front, Indofood Agri Resources is actually the owner of one of Indonesia’s leading cooking oil brands, Bimoli. On top of its palm oil business, it also has interests in the sugar industry in Brazil and The Philippines. The company is also involved with other commodities like rubber, cocoa, and tea.

Foolish Summary

Investors looking at commodity companies should take a closer look into their operations and business model. Once you have done that, you will realize that not all commodity companies are the same and that investing into Bumitama Agri or Indofood Agri Resources, for instance, might produce two very different outcomes.

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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 Stanley Lim doesn’t own shares in any companies mentioned.