An Investor’s Overview Of First Resources Ltd And Bumitama Agri Ltd: Growth, Efficiency, And Returns

Singapore-listed First Resources Ltd (SGX: EB5) is one of the leading palm oil producers in the region, managing over 200,000 hectares of oil palm plantations across the Riau, East Kalimantan, and West Kalimantan provinces of Indonesia.

Another palm oil producer in Singapore’s stock market is Bumitama Agri Ltd (SGX: P8Z). In a similar manner to First Resources, Bumitama Agri manages oil palm plantations in Riau, East Kalimantan, and West Kalimantan. The company has over 160,000 hectares of plantation.

Given that both First Resources and Bumitama Agri have very similar businesses, I thought it will be interesting to have an overview on some important business metrics for the two companies.

Doing so can help investors understand where First Resources and Bumitama Agri stand in terms of the quality of their businesses.

The aspects of First Resources and Bumitama Agri’s business that I want to study are the growth of their plantation and production sizes, the operational efficiency of their plantations, and their returns on equity.

Growth of plantation and production size

The table below shows the changes in both companies’ plantation size and volume of fresh fruit bunches (FFB) production:

Source: Companies’ filings

We can see that First Resources has been growing its plantation size at a faster pace. But, it is Bumitama Agri’s FFB production that is expanding at the higher rate.

Operational efficiency of plantations

There are two metrics to look at here. One is the FFB yield per hectare and the other is the crude palm oil (CPO) extraction rate. Here’s how the two metrics for both companies have changed from 2011 to 2015:

Source: Companies’ filings

First Resources ended 2015 with a slightly higher FFB yield than Bumitama Agri. But, it should be noted that First Resources’ FFB yield has declined over the years whereas the self-same figure for Bumitama Agri has increased.

Meanwhile, both companies had very similar CPO extraction rates in 2015 – the rates for both companies had also declined slowly since 2011.

Returns 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. The higher the ROE, the more profit a company makes per shareholders’ dollar it controls.

With that, let’s look at the return on equity for both companies from 2011 to 2015:

Source: S&P Global Market Intelligence

What’s striking here is that both companies had strong returns on equity of more than 20% in 2011. But by 2015, the two palm oil producers’ returns on equity had shrunk to the low teens percentages. This could be a sign that the palm oil industry as a whole has had a tough time in recent years.

A Foolish takeaway

Given what we’ve seen, we can conclude that First Resources and Bumitama Agri each have their own strengths.  Anyway, it’s important to note that all the above should only be seen as a good starting point for investors for further research.

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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.