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An Investor’s Look At The Financial Performance Of Wilmar International Limited And First Resources Ltd

One of the industries that Southeast Asia has big control over is palm oil. Together, Indonesia and Malaysia collectively supply over 80% of the world’s palm oil.

There are a number of companies in Singapore’s stock market that are part of the palm oil industry. These include Wilmar International Limited (SGX: F34), Golden Agri-Resources Ltd (SGX: E5H), First Resources Ltd (SGX: EB5), Indofood Agri Resources Ltd (SGX: 5JS), and more.

Though all these companies deal with palm oil, they may have very different financial performance. So, I thought it’d be interesting to have a closer look at these companies’ growth, profit margins, and returns on equity. I’d start with Wilmar and First Resources.

Wilmar’s business involves not just palm oil production, but also the production of sugar and palm-oil-related consumer products. There’s actually even more to the company; it is Asia’s leading agribusiness group. As of 31 March 2016, Wilmar has a planted area of 240,408 hectares.

Meanwhile, First Resources runs palm oil plantations and also refines and processes the crude oils that come from the palm fruits. The company has over 200,000 hectares of planted area at the end of 2016’s first-quarter.

Growth

Growth is an important component of a company’s value. The faster a company can possibly grow its business in the years ahead, the more valuable it could be.

The following’s a table showing the change in revenue and net profit for both Wilmar and First Resources:

Wilmar and First Resources revenue and profit table
Source: S&P Global Market Intelligence

As you can tell, both companies haven’t done too well over the past few years given their falling revenues and profits.

Profit margins

I’d be looking at the gross profit margin here.

The gross profit margin measures the percentage of profit a company makes for each dollar in sales it has after deducting all the costs that are directly related to the sale. Changes in a company’s gross margin over time can be a proxy for shifts in the company’s pricing power.

Let’s see how Wilmar and First Resources stack up:

Wilmar and First Resources gross profit margin table
Source: S&P Global Market Intelligence

Wilmar has managed to see its gross profit margin increase, whereas First Resources’ gross profit margin has been on a steady decline.

Return on equity

The return on equity is a measure of how much profit a company can make for each shareholders’ dollar it has in its possession.

In general, if we assume that a company is not operating with a highly-geared balance sheet, the return on equity can also be seen as a gauge for the quality of a business, with a high return on equity being associated with a high-quality business.

Here’s how Wilmar and First Resources’ returns on equity from 2011 to 2015 look like:

Wilmar and First Resources return on equity table
Source: S&P Global Market Intelligence

It’s apparent that both companies’ returns on equity have been declining. A fall in the price of crude palm oil in the past few years has hurt their returns. Meanwhile, First Resources has also consistently delivered a higher return on equity than Wilmar.

A Fool’s take

To sum up, both Wilmar and First Resources have seen their revenues and profits fall in the past few years. Meanwhile, their returns on equity have also followed suit. In terms of its gross profit margin, Wilmar has managed to eke out some growth, but the same can’t be said for First Resources.

What I’ve shared above can serve as useful starting points for investors to conduct deeper research on the two firms.

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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.