Shopping Time!! Should Investors Buy Palm Oil Stocks Amidst Crisis?!
Amid a market roiled by geopolitical tensions, savvy investors are on the hunt for robust investment opportunities. A striking illustration of this trend is the overwhelming response to MKH Oil Palm (East Kalimantan)’s IPO, which was oversubscribed by 8.4 times. History shows us that in times of crisis, commodities typically become a safe haven, making now an intriguing moment to consider palm oil stocks.
As I pen this, the price for Crude Palm Oil (CPO) has surged to around RM4,000 per tonne. To put this into perspective, most palm oil producers in Malaysia thrive when CPO prices hold steady above RM2,500 per tonne.
One standout in the sector, based on my analysis, is Muar Ban Lee Group Berhad (MBL). This company isn’t just another plantation operator; it specialises in the design and manufacture of a range of critical industry machinery and systems.
This includes palm kernel crushing plants, copra (coconut) crushing plants, solvent extraction plants, as well as treatments for Empty Fruit Bunches (EFB) and Palm Oil Mill Effluence (POME) water systems.
Essentially, MBL’s offerings are indispensable to palm oil planters, positioning it as a pivotal player in the industry.
In fiscal year 2023, MBL reported a Profit After Tax (PAT) of RM19.1 million. With a current market capitalisation of RM113.1 million, MBL trades at a price-to-earnings (P/E) ratio of just 5.92. This valuation suggests that MBL carries lower risk relative to pure CPO price fluctuations, while potentially benefiting from increased demand for its products and services.
Industry insights suggest that demand for such machinery and systems has nearly doubled compared to weaker years like 2022, bolstered by the strong CPO prices we’re seeing today. Given these conditions, it’s reasonable to forecast that MBL could see a 50% increase in PAT, potentially reaching RM28.7 million. If achieved, this would adjust MBL’s forward one-year P/E ratio down to an attractive 3.94, which is significantly lower than that of any plantation company in Malaysia.
Despite these strong indicators, MBL’s share price remains modest, particularly when viewed against a five-year average. This discrepancy underscores the stock’s substantial upside potential. In my view, MBL is a hidden gem in the palm oil industry, ripe for discovery by discerning investors looking to capitalise on current market dynamics.
In conclusion, for those looking to diversify into commodities amidst current global uncertainties, MBL offers an intriguing proposition with its vital industry role, solid financials, and untapped market potential. It’s definitely a stock worth considering for your investment portfolio.
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