4 Things For Investors To Like About First Resources Ltd Now

In a recent article of mine, I had looked at two reasons why I like the palm oil industry.

Now, it’s very tough for individuals like us to go out and buy a piece of land in Indonesia or Malaysia and start growing oil palm trees.

Fortunately, there are a number of palm oil producers in Singapore’s stock market that could provide a conduit for investors to tap into the palm oil industry. One such company is First Resources Ltd (SGX: EB5). In here, I’d like to share four strengths that I see in the firm:

1. Young age-profile for its oil palm trees

As of 31 December 2015, 56% of First Resources’ oil palm trees are aged seven years or below. This gives plenty of potential growth for the company’s future fresh fruit bunches (FFB) production as the prime productive age for oil palm trees range from eight to 17 years. .

For some perspective, a large Singapore-listed palm oil producer such as Wilmar International Limited (SGX: F34) currently has only 20% of its total oil palm trees being under seven years old. The selfsame figure for another hefty palm oil producer, Golden Agri-Resources Ltd (SGX: E5H), is just 16%.

2. Integrated palm oil operations

First Resources has integrated palm oil operations. The company runs plantations to produce the palm fruits, milling factories that produce the crude palm oil, and processing facilities that turns the crude oils into its derivative products such as biodiesel and glycerine.

This allows First Resources to partially hedge against the fluctuation of crude palm oil prices.

3. Sustainable earnings

The company has a focus on cost control and efficiency and that has likely contributed to its relatively stable earnings. First Resources was listed in 2007 and since then, the company has been consistently profitable despite the palm oil industry having to face some difficult periods in the past nine years.

4. Proven management

First Resources is led by what I see as a proven management team – the company has managed to grow over the years while utilising a reasonable amount of debt (according to S&P Global Market Intelligence, First Resources’ total debt to equity ratio has never exceeded 52.3% from 2008 to 2015).

So, the above are traits about First Resources that I find attractive. But, does this mean that investors should rush in and buy the stock? Not so fast. Even if a company has a strong business, the price of its stock relative to its value is also a crucial thing to consider and this applies to First Resources too. And, the question of “Is the price attractive now?” is something every investor needs to answer for him or herself.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.