Short position - CPO anomaly


The likes of IOI Corp Bhd, Kuala Lumpur Kepong Bhd and United Plantations Bhd are all trading at their multi-year highs, following the trend of their underlying product, which is the commodity.

CPO anomaly

CRUDE Palm Oil (CPO) is at a 10-year high. But surprisingly, not all plantation stocks are following the trend.

There is a line separating the big plantation boys from the smaller players in the sector in this round of the rise in CPO prices. The likes of IOI Corp Bhd, Kuala Lumpur Kepong Bhd and United Plantations Bhd are all trading at their multi-year highs, following the trend of their underlying product, which is the commodity.

However, the smaller players in the plantation sector are lagging. The likes of IJM Plantations Bhd, TSH Resources Bhd, Sarawak Oil Plams Bhd and Hap Seng Plantations Bhd are not trading anywhere near their previous year highs.

The performance of government-linked plantation companies such as TDM Bhd and Boustead Plantations Bhd are worse off. The stock prices of these companies are nowhere near the reflection of the price of the commodity.

Nobody is really able to point a figure to explain the anomaly. But taking a closer look at the challenges that the industry faces may give an insight into why some companies are lagging.

Although the CPO price is high, the production levels are not the same due to various reasons. It ranges from the low harvest of fresh fruit bunches (FFB) due to adverse weather conditions to the lack of manpower to effectively collect the fruits according to schedule.

Planters are happy that the price is high. But their joy turns to despair when the FFB production suffers due to the excessive wet weather. In addition, the fruits should be harvested at least once in 20 days.

But the lack of manpower extends the harvesting period to as far as 30 days, affecting the quality of the FFB.

Another factor that is causing the lagging effect is related to the question of CPO sustaining at current price levels that is close to RM4,000 per tonne. If prices can remain at such levels for a few more months, the laggards will probably start to move as investors seek opportunities.

Newbies still chasing rubber glove-making

A year into the pandemic, and there are still more listed companies trying to jump on to the rubber glove-making bandwagon. Perhaps, the increasing number of Covid-19 infections are spurring these companies on to venture into an industry that is said to be one of the main beneficiaries of the pandemic.

That said, the journey to become a profitable rubber glove maker is a challenging one. First up is the high capital expenditure required to start up a facility. And that would just be the first hurdle.

Following that will be the domestic approvals needed for manufacturing rubber gloves. Staffing it seems poses a new challenge as some of the large glove makers have had Covid-19 cases among their workers.

Two other main challenges remain: one is securing international certification for the gloves before foreign buyers are confident enough to purchase them.

Another is securing raw materials such as base chemicals to produce nitrile gloves.

The worry is that if a new player acquires such chemicals at high spot prices, they could face the likelihood of lower average selling prices of gloves, which in turn could come about from lesser usage of gloves as vaccines get rolled out.

For the first challenge, one way out is to quickly hire the right expertise in order to get the plants up and running and secure the necessary certifications, no doubt an expensive endeavor.

In this regard, it is noteworthy that rubber glove giant Hartalega Holdings Bhd has initiated legal action against a former executive director for setting up a competing business against the company.

Separately, the latest entrant among listed companies to announce its venture into rubber glove manufacturing is circuit board maker PNE PCB Bhd, which plans to set up five glove production lines with each making approximately 300 million pieces per year.

Casting the financing net wide

INTEREST in a digital banking licence is surely going to pick up the pace with a host of companies already angling for a slice of a lucrative banking club.

You have telcos and airlines along with IT companies that have put their hands up to indicate interest in a new business venture, that judging from how much money the physical banks are making, has surely whet the appetite of future participants in a digital banking platform.

Bank Negara has invited applications for digital banking licences and has indicated it may issue up to five licenses to qualified applicants.

The deadline for the submission of applications to conduct digital banking or Islamic digital banking businesses has been set at June 30,2021 and notification on the grant of licence will be made by the first quarter of 2022.

It is a long way away until the winners are known but what is clear is that Malaysia wants to leverage on its position in the global syariah banking market when granting a digital banking licence.

Bank Negara also wants the licensing framework for digital banks to enable the innovative application of technology to uplift the financial well-being of individuals and businesses and foster sustainable growth.

This includes expanding meaningful access to and promoting responsible usage of suitable financial solutions to unserved and underserved segments, it says.

CNAsia Corp Bhd has thrown its hat into the group of companies jostling for a licence but it has a twist in its approach.

The investment holding companies was to use the digital platform to provide micro-credit facilities primarily for women.

It is a noble approach to focus on microcredit and women but there may be competitive pressures if its scope is limited to what a full-fledged digital bank is expected to do.

Competition is strong in all aspects of banking and zeroing in on one specific segment would need further study to see if women are actually underserved in the access of credit or banking facilities.

If they are, then it would be a structural problem that needs to be fixed.

Malaysia does rank strongly in global surveys on access to financing, which would indicate that any segment of the population that wants a credit line would get access to such if they do qualify.

Furthermore, there are grants and other government-sponsored programmes that do target the underserved and needy, which would also include women.

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