First Capital Holdings PLC has organized an investor forum titled “First Capital Equity Forum – Life Insurance and Port City” to be held on Thursday 15th July 2021, from 3.30 p.m. to 5.00 p.m. The forum will be presented as a virtual form, via Zoom and Facebook Live.
The event is geared to provide participants with an overview of our expectations on the Life Insurance Sector, followed by a panel discussion on the Life Insurance Sector and a dialogue on the Colombo Port City Economic Commission Act.
Register now >> https://tiikm.zoom.us/webinar/register/WN_dNaqmxC8QqKZqf_Ez4ojjA
Sri Lanka Investment Forum Livestream, in which our Director, CEO, Dilshan Wirasekara moderated a discussion on the Potential of Corporate Debt Capital with Senaka Kakiriwaragodage – Director, Chief Executive Officer for NDB Capital Holdings Limited and Vishnu Balachandran – Executive Vice President for CAL.
View the session: https://m.youtube.com/watch?v=xmQCT4nyVjQ
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First Capital presents “Mid-year Outlook – 3rd Research Conference” a follow-up to the hugely successful “Investment Strategy 2020 – 2nd Research Conference” held in February 2020, at the Oak Room, Cinnamon Grand.
The event is geared to provide participants of the investment community, an overview of our expectations on the economic front mainly on interest rates, AWPLR, exchange rate, bond expectations, GDP forecast etc.
Mid-year Outlook 2020 webinar will be held on Tuesday, 22nd September 2020 at 3.00 pm.
Presenters, Dimantha Mathew and Atchuthan Srirangan from our Research Team will take you through a recap of recommendations of Jan 2020 and post covid-19 revisions, in addition to discussing “Why W-Shaped Recovery?”.
Register today by clicking https://tiikm.zoom.us/webinar/register/WN_J5980arwT5GU3R4yJIPwLA
There are 19 companies listed under the plantations sector on the Colombo Stock Exchange generating a total market capitalization of LKR 22Bn. The industry is mainly export oriented revolving around Tea, Rubber and Palm Oil cultivation, however the segment is currently going through changes.
Ceylon Tea commands $ 1.2Bn of the Export Market while Rubber has an Export Economy of $24 Mn.
The largest contributor according to market capitalization is Watawala Plantation with a market cap of LKR 4.5Bn, it is the largest palm oil cultivator in the island.
In the financial year 2016 palm oil generated LKR 1.6Mn profit and in a global context it is in high demand with an expected growth of 7.3% over the next 5 years.
Analysis of the Plantation Sector and the dynamics involved, on Channel Eye’s “Business Today” 11-01-2017 – Senior Research Analyst Hansinee Beddage.
By Chandeepa Wettasinghe
Sri Lanka’s oil palm plantation operators can expect strong growth in the industry for the foreseeable future due to the global palm oil demand, the research arm of a Colombo-based equity brokerage said in a report.
“This growth is on the back of global palm oil prices moving upward due to the expectations of global shortages in supply matching demand,” First Capital Research (FC Research) said.
It noted that due to the El-Nino weather conditions, the reducing rain fall in the major oil palm cultivating countries such as Malaysia, Indonesia and Thailand in 2015, the supply from those markets are expected to drop by six million tonnes.
“It is expected that the supply of palm oil will not meet the demand in coming years, pushing up the price as forecasted. Global price increase will push up the local palm oil price in correlation,” FC Research said.
It added that within three months, the palm oil prices, which were US $ 583.19 per tonne increased to US $ 692.41 per tonne last September and that the prices would move up to US $ 713 per tonne by 2020, according to the World Bank estimates.
Palm oil is used as a raw material in making vegetable oil and biodiesel—which is gaining demand due to the world moving towards less crude oil consumption—and the combined manufacturing of both are expected to grow by 7.9 percent annually until 2025, according to FC Research.
In Sri Lanka, Watawala Plantations PLC was the country’s first and currently the largest oil palm cultivator with around 3,157 hectares under cultivation under a diversification effort that began over a decade ago, which allowed it to remain profitable during hard times for tea and rubber recently.
Namunukula Plantations PLC had an extent of 2,020 hectares of oil palm under cultivation, followed by Elpitiya Plantations PLC with 1,447 hectares and Agalawatte Plantations PLC with 1,294 hectares at the start of the current financial year.
Kegalle Plantations PLC is planning to plant 1,125 acres of oil palm in its current rubber fields, while Bogawantalawa Tea Estates PLC has also announced its intentions to plant 700 hectares of oil palm over the past year.
FC Research said that oil palm cultivation requires less labour, with just 0.1 workers required per hectare, compared to four workers for tea and one worker for rubber required for the same land extent under cultivation. Oil palm workers have also been noted to earn three times as much as a tea plucker.
Labour wage payment is a major issue in the tea and rubber-dominated plantation industry, which was only recently able to come to a compromise with the trade unions in increasing wages.
FIRST CAPITAL RESEARCH – COMPANY REPORT PUBLISHED ON THE ISLAND NEWSPAPER.
Elpitiya Plantations PLC (ELPL) is a listed regional plantation company engaged in Tea, Rubber and Palm oil cultivation. ELPL is expected to grow its earnings at a CAGR of c.36% FY16-FY19E, to c. LKR 500Mn in FY19E. Earnings will grow on the back of Palm oil having segment margin improving and contribution to revenue portfolio increasing. FC Research expect ELPL to provide an annualized return of 46% with a fair value of LKR 27.0 by FY18E. STRONG BUY
Palm oil to drive bottom line growth: ELPL’s top line is expected to grow at a CAGR of c.10%YoY in FY16-FY19E. FC Research expect that performance will be on the back of earnings from Palm oil improving with a CAGR of c.28%YoY. As of FY16 Palm oil contributed 17% to ELPL’s revenue portfolio which FC Research expect to increase to c.27% by FY18E. This growth is on the back of global Palm oil prices moving upward due to expectations of global shortages in supply matching demand and mature palm oil plantations hectarage of ELPL increasing by CAGR of c.13%.
Multiplexing revenues through investments: ELPL has diversified from its principal activities to manufacturing specialty tea Hydro power generation, hotel and adventure park operations through its investments which will create additional revenue streams to ELPL. FC Research expects ELPL to benefit substantially from Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd as it will provide an edge to acquire market share in China, 10th largest customer of Ceylon tea and a high growth market, and AEN Palm Oil processing (Pvt) Ltd will provide synergy to ELPL by boosting margins in the segment.
ELPL to provide a return of 46% by FY18E: FC Research estimates ELPL’s fair value at LKR 27.0 (DCF based LKR 30.5, PER based LKR 24.3) providing an annualized return of 46% in FY18E.
Investment risk: Impact from government policy actions in estate worker wage hike and cap on land held by plantations Company is yet to be seen. ELPL is also exposed to the risks of key currency rates’ fluctuations and volatility of product prices.
Watawala Plantations PLC (WATA) is primarily engaged in tea and palm oil cultivation. We initiate coverage on WATA at a time where the company has made a strategic move to dairy farming while adapting a “quality driven” strategy for tea having discontinued rubber.
On the back of rising prices and yields in the palm oil segment which is the major enzyme of its profitability, WATA is expected to grow its earnings at a CAGR of 31% during FY16-19E, despite the headwinds from wage hike. FC Research estimates a fair value of LKR 30.0 giving a total annualized return of 53% in FY18E. STRONG BUY
Oil palms shelter the bottom line: With the rising global palm oil prices and increasing yields at WATA’s palm oil nurseries, we expect palm oils to contribute significantly to the bottom-line. This we believe will completely offset the impact of recent wage hike which is estimated to be ~LKR 230Mn.
Palm oil prices are expected to increase in close correlations to the rising crude oil prices. WATA is the largest palm oil planter in the sector with 3,157 hectares of palm oil of which 76% is mature where the yields are peaking. As ~756 hectares foster young plants with expectations to add ~200 more, we expect the yields to increase going forward. Palm oils generated ~55% of gross margins in FY16 which could be seen improving to ~70% in 1HFY17.
Strategic focus nurtures future profitability: The Company adapted a “quality driven” strategy for tea, where they will produce less quantities for a superior standard. Moving away from quantities brings down the losses incurred in the tea segment, which is struggling with ever rising wage and utility costs that makes it difficult to sustain margins in a price-sensitive global market. Similarly WATA completely stopped its Rubber processing,
putting a full stop to losses from the segment while converting them to palm oil. Further, they made an important strategic move to Dairy Farming which is expected to have a sizeable under-tapped demand.
WATA to provide a return of 53% by FY18E: FC Research estimates WATA’s fair value at LKR 30.0 (DCF based LKR 30.0, PER based LKR 29.0) providing an annualized return of 53% in FY18E.
Investment risks: Extreme weather conditions, changing political and social landscape, pressure on costs from continuous wage demands and rising utility costs and difficulty of sourcing land for palm oil cultivations limiting further expansion are some of the risks WATA faces.