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An Overview Of First Resources And Kuala Lumpur Kepong- Growth, Efficiency And Returns

First Resources Ltd (SGX: EB5) is one of the leading palm oil producer listed in Singapore. It manages over 190,000 hectares of oil-palm plantations across the Riau, East Kalimantan and West Kalimantan provinces of Indonesia.

Kuala Lumpur Kepong Berhad (KLSE: 2445.KL) is one of the main palm-oil players listed in Malaysia. It has over 270,000 hectares of plantation, spread across Malaysia (Peninsular and Sabah), Indonesia (Belitung Island, Sumatra, central and east Kalimantan) and Liberia (Palm Bay and Butaw).

Given that both companies operate very similar business models – integrated palm oil producer, it could be useful to look at a few simple metrics for both companies.

Growth:

Here, we will look at 5 years historical growth trend of both palm oil land and fresh fruit bunches production.

Oil palm plantation land (Hectares) 2011 2015 Growth Rate
First Resources 132,251 207,575 57%
Kuala Lumpur Kepong 187,084 209,249 12%
Fresh fruit bunches (thousand tonnes)
First Resources 1,899 2,805 48%
Kuala Lumpur Kepong 3,289 3,806 16%

We can see that First Resources has been growing its plantation land and FFB at a faster pace than Kuala Lumpur Kepong.

Efficiency:

Here, we will look at 2 types of efficiency, namely plantation and operating efficiency. For the former, we will use fresh fruit bunches yield per hectare and for the latter we will use CPO extraction rate.

FFB yield per hectare (tonnes) 2011 2012 2013 2014 2015
First Resources 22.2 23.0 18.7 18.7 19.0
Kuala Lumpur Kepong 22.2 21.3 22.5 22.4 22.0
CPO extraction rate %
First Resources 23.6 23.3 23.1 22.8 22.7
Kuala Lumpur Kepong 21.4 21.7 21.5 22.0 22.3

We can see that First Resources has consistently demonstrated better CPO extraction rate in the last 5 years compared to Kuala Lumpur Kepong. Yet, the latter is more consistent in term of FFB yield per hectare during the period.

Return on equity (ROE)

Return on Equity (RoE) measures the return on investor capital. The higher the ROE, the higher the return on each dollar of investors’ capital.

With that, let’s look at the return on equity of both companies in the last 5 years.

ROE (%) 2011 2012 2013 2014 2015
First Resources 21.1 20.5 22.9 15.5 10.3
Kuala Lumpur Kepong 22.2 17.0 12.2 12.8 9.0

Apart from 2011, First Resources has consistently outperformed in term of the RoE for the last 5 years.

The quick overview is a good starting point for investors to dig deeper to better understand the attractiveness of both companies.

Some simple comparisons such as the ones above will let investors ask better questions about the companies. For example, investors may want to understand why KLK is able to sustain a FFB yield of about 22 per hectare, whereas First Resources’s FFB yield has declined from 22 to 19 per hectare during the last 5 years.

These questions could help investors make better long-term investment decisions.

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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.