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What Investors In First Resources Ltd And United Plantations Berhad Should Know: Their Growth, Efficiency, and Returns on Equity

Credit: Simon Cunningham

First Resources Ltd (SGX: EB5) and United Plantations Berhad (KLSE: 2089.KL) are both palm oil producers.

The former manages over 200,000 hectares of oil palm plantations across the Riau, East Kalimantan, and West Kalimantan provinces of Indonesia. The latter has around 50,000 hectares of plantation land spread across Malaysia and Indonesia in a roughly 80:20 ratio.

Given that both companies operate very similar business models – they are integrated palm oil producers – I thought it will be useful for investors in either or both companies if I were to have an overview of a few simple but important metrics for both. Doing so can help investors better understand both companies through the lenses of peer-to-peer benchmarking.

With my intention established, let’s now look at three aspects of First Resources and United Plantations, namely, their plantation-size and production growth rate, their production efficiency, and their returns on equity.

Plantation-size and production growth

Over the past five years from 2011 to 2015, here’s how First Resources and United Plantations’ plantation-size and fresh fruit production have changed:

first-resources-and-united-plantations-growth-table
Source: Companies’ filings

We can see that First Resources has been growing its plantation size and increasing the amount of fresh fruit bunches (FFB) produced. Meanwhile both numbers for United Plantations have been flat over the period under study.

Production efficiency

I am focusing on two types of efficiency here: namely plantation and operating efficiency. For the former, I will use the fresh fruit bunches (FFB) yield per hectare and for the latter, it will be the crude palm oil (CPO) extraction rate.

first-resources-and-united-plantations-ffb-yield-and-cpo-extraction-rate-table
Source: Companies’ filings

Turns out, First Resources has generally achieved a higher CPO extraction rate from 2011 to 2015 when compared to United Plantations. But, it is United Plantations that has the superior FFB yield per hectare.

Returns on equity (ROE)

The return on equity gauges a company’s ability to generate a profit with the shareholders’ capital it has. The higher the return on equity, the higher the return on each dollar of shareholders’ capital.

Here’s how the two companies’ returns on equity look like from 2011 to 2015:

first-resources-and-united-plantations-roe-table-2
Source: S&P Global Market Intelligence

First Resources has generally been the one with the higher return on equity. But, it’s also obvious that the company’s return on equity is more volatile; in other words, the company is more sensitive to fluctuations in the price of crude palm oil (CPO).

Foolish takeaway

This quick overview on both companies also allows investors to ask deeper questions.

For example, why has United Plantations’ extraction rate, though lower than First Resources in most years between 2011 and 2015, improved consistently, unlike First Resources? By asking deeper questions, investors can better understand the companies they are investing in and hopefully make more informed 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.