Opportunity in The Rise of Palm Oil Prices

What would you do if you had $5 billion in cash?

- Teguh Hidayat

The most sensible answer is probably to buy some productive assets. But what kind of asset? What about simple and easy assets everyone owns?

No longer into the cigarette business, Putra and his son, Michael, decided to diversify their business in five areas, i.e., agriculture, finance, property, telecom, and timber. The palm oil business was one of the most common businesses owned by conglomerates in Indonesia. The industry is relatively easy and has long-term characteristics. That's what Putera Sampoerna did back in 2005 when he decided to sell PT HM Sampoerna, to Philip Morris for $5 billion. Then the Sampoerna family began their venture in the palm oil business by acquiring companies and consolidating them into PT Sampoerna Agro (SGRO), which was then listed at the Indonesia Stock Exchange.

At the end of 2020, SGRO had 169,000 hectares of planted area spread across Riau, South Sulawesi, Central Kalimantan, and West Kalimantan, of which 135,000 hectares, including plasma, were oil palm plantations. From this, we can note that SGRO is a vast palm oil plantation firm, although not as big as PT Salim Ivomas Pratama, which has 390,000 hectares of planted land. In the first semester of 2021, SGRO posted an annualized net profit of Rp774 billion. However, up to last year, SGRO hadn't shown such a healthy financial performance with its net income continuing to decline since 2016. Moreover, SGRO stocks have been less attractive to investors with the stock price between Rp1,500 – Rp1,800 since 2013 and the stock transactions are also illiquid.