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Which Palm Oil Company Is a Better Buy in 2019? (Part 3)

One of the worst-performing industries in the last five years (other than the oil and gas industry) has been the palm oil industry. During this period, companies like First Resources Ltd (SGX: EB5) and Bumitama Agri Ltd. (SGX: P8Z) saw their market capitalizations decline in excess of 30%.

Nevertheless, there are still plenty of reasons to like plantation companies. For one, their main product, crude palm oil (CPO), is an important food ingredient. Moreover, they generate rental-like income since palm oil trees can produce fruit for 20-25 years.

Those looking for investment ideas in this sector should keep reading as we compare First Resources and Bumitama Agri, two companies with significant palm oil businesses in Indonesia.

In part 1 and part 2, we compared the companies’ latest financial performances as well as their track records of growth over the last five years. Bumitama Agri came in ahead in both rounds.

In part 3, we’re comparing the companies on valuation using the price-to-book (P/B) ratio, the price-to-earnings (P/E) ratio, and dividend yield.

The showdown

First Resources and Bumitama Agri have P/B ratios of 3.0 and 2.3, respectively. The low P/B ratio for Bumitama Agri suggests that it has a lower valuation.

Next, First Resources and Bumitama Agri have P/E ratios of 19.5 and 13.5, respectively. Again, Bumitama Agri appears to have the lower valuation.

Last but not least, the respective dividend yields for First Resources and Bumitama Agri are 2.0% and 4.0%. The higher a stock’s yield, the lower its valuation. Once again, viewed through this lens, it looks like Bumitama Agri has the lower valuation.

Bumitama Agri seems to be the cheaper stock.


Bumitama Agri emerges as the winner of our showdown by besting First Resources in all three tests: better 2018 performance, a better growth track record, and a lower valuation.

Lastly, investors are reminded that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point 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.