3 Things Investors Should Know About Bumitama Agri Ltd

Bumitama Agri Ltd (SGX: P8Z) is a company that is involved with palm oil. Its primary business activities are cultivating oil palm trees, as well as harvesting and processing fresh palm fruit bunches (“FFB”) into palm oil and palm kernel, which are sold to refineries in Indonesia. Its operations are located in three provinces in Indonesia, namely Central Kalimantan, West Kalimantan and Riau.

Last week, the company’s shares were trading at around S$0.70, which is just 6% higher than a 52-week low of S$0.66. That prompted me to take a deeper look at its business.

Here are three things I found:

1. Growth in plantation size

Bumitama Agri has been growing the land area of its plantations over the past decade and more. In 2002, the company’s planted area was 5,186 hectares; this has grown to 164,177 hectares by 2015.

The chart below gives a nice overview of Bumitama Agri’s progress in building out its plantation size:

Source: Company’s website

2. Age profile of trees

As of 1 January 2015, the trees in Bumitama Agri’s plantation have a weighted average age of 6.9 years. The company stated in its 2015 annual report that such an age is “young and favourable.” It added:

“Oil palm trees have an average lifespan of 25 years, reaching maturity between 4-18 years and registering peak production period ranging from 7-18 years of age. The young age of our trees ensures that the Group’s growth profile will remain strong in the coming years.”

Around 49.5% of Bumitama Agri’s trees were at peak production age as of 1 January 2015. These data show that Bumitama Agri has many more years of harvesting left in its existing plantations.

3. Presence of major shareholders

As of 15 March 2016, two shareholders – namely Wellpoint Pacific and IOI Corporation Bhd (KLSE: 1961.KL) – collectively own 81.93% of Bumitama Agri’s total shares.

Wellpoint Pacific is linked to Lim Gunawan Hariyanto, the chief executive of Bumitama Agri. Meanwhile, IOI Corp is a major palm oil plantation player listed in Malaysia and is controlled by Tan Sri Dato’ Lee Shin Cheng.

Since both Wellpoint Pacific and IOI Corp own most of Bumitama Agri’s shares, the duo have the ability to control the financial and operating policy of the company. It could thus be important for minority shareholders of Bumitama Agri to understand the long-term strategies and philosophy of the two large shareholders.

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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.