Plantation Sector - Yesterday, Today and Tomorrow

Sri Lankan plantation sector is the most lucrative sector for 2017 ATM. Several plantation sector stocks have witnessed more than 100% price appreciation in their stock prices. It is well known fact that this is due to positive appetite by retail investors for the increase in commodity prices in the world market due to some good reasons.

We have witnessed a good rise in palm oil, tea as well as rubber prices since Q3 of 2016 to Q1 of 2017. Thereafter we have witnessed a consolidation of palm oil prices and a gradual decline in rubber prices. However, tea prices showed a mixed sentiment yet on average basis the average tea prices for Q2 of 2017 showed a growth of 3%-5% over the average tea prices of Q1 2017.

Overall, the companies with higher exposure for tea has appreciated dramatically and the companies with good exposure to palm oil appreciated and then stabilizes towards the Q3 2017 while the companies with higher exposure to rubber have appreciated by the least amount or stagnates on YTD basis.

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The above is the summary of stock price performance of some selected plantation stocks YTD 28th September 2017. As per the table all plantation stocks gained in this year so far where most of the heavy tea producing companies have registered more than 100% gain. This stock price performance has made the plantation index the best performing index for this year gaining by 386 points or 60% so far.

It is time to look at and load tea related business such broking companies where there earnings are directly related to high tea prices

The world plantation industry suffered a huge blow from continuing decline in commodity prices until Q3 of 2016. Rubber prices were crashing down with decline in crude oil prices. Tea prices crashing down due to low demand from heavy tea consuming destinations. Only palm oil prices showed some sort of stability.

This situation affected the Sri Lanka’s plantation industry as well. Most of the companies who recorded good results during 2011 – 2012 market boom started to report losses due to decline I commodity prices as well as continuous increase in cost of production mainly due increase in daily wages. On top of that Sri Lanka’s annual tea and rubber production have declined YoY alarmingly. The year 2015 was the worse after 2011 & 2012 where almost all the plantation sector companies reported huge losses except for few companies who have palm oil to cushion the impact of tea and rubber.

However, from 2nd half of 2016 the things have started to change. World commodity prices have increased steadily till Q1 of 2017 and showed a kind of stability. Still rubber prices have shown signs of coming down again due to the continuous decline in crude oil prices. However, tea prices have shown a continuous growth till the point of writing this article due to two major reasons that affected the global tea supply and demand.

a) Kenya being the largest tea producer for the world claiming more than 15% of the market share have witnessed a rapid decline in production due to adverse whether
b) Major tea consuming destinations such as Iran and Iraq have increased their demand for tea following the ease of trade restrictions
The above two reasons have created massive opportunity for Sri Lanka’s tea sector in terms of demand thus pushing the prices to a level never seen during the last five years. As a result, tea revenues sky rocketed even with a YoY decline in Sri Lanka’s annual tea production.

I have summarized the above scenario in the below image. For illustrative purposes, I selected few plantation sector stocks that have high exposure for tea.

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As per the above image it is clear how the fortunes of the tea companies change from good to bad and then from bad to good. The five companies I have selected had a cost of sales to revenue ratio of 91% in 2012 which worsen to 106% in 2015 where absolutely no room to cover the opex resulting huge losses. The slump in prices in tea auctions together with decline in production caused this situation. Then it is clear as to how the fortunes started to change from Q3 2016 where prices at Colombo Tea auction reached record levels. Then the cost of sales to revenue ratio dramatically improved to 81% during the quarter ended June 2017. The prices recorded in the auction for the July-September period showed even a higher level than Q2 average so what should be the result of these companies in the current quarter?

Thanks.

thank you dear

Then after all we have seen the plantation sector index rising past 1,000 level after 2011. Will this trend continues in the coming quarters. That is depending on how the below chart going to behave in the coming quarters.

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At the moment the tea prices are increasing QoQ so hopefully we should see similar result compared to last quarter from tea plantations this quarter.

The forecasts from tea destinations indicate the current strong demand to sustain for another considerable time while the drought in Kenya seems to be not improving soon till the end of the 4th quarter. So the likely outcome is that tea plantations to record sustainable earnings for the next 3-4 quarters and there by I estimate the plantation index can run towards the all time high recorded in 2011.

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Thanks you The Invisible

pissu hadenawa ldev , mal dakkama...

These particular two shares will have a good medium term growth. As per my research there are well poised to record sustainable earnings in the quarters to come.

In the meantime I noticed a silent collection in Balangoda plantations. A long accumulation going on at a stable price. This could be the next black horse.

Maskeliya continue to consolidate alongside Balangoda. Lankem Development and Malwatthe established completely new records. These are the takings for this week. How will be the next week proceedings going to be. Any guesses...

Bala is my wish...

Touching these 2 shares now is risky as I think, They are overheated and now need some cool down before continue it's uptrend... BALA, MADU is my choice for the next week...

ELPL,BOPL is stile silent..., But Buying pressure come to these two shares and price increase can happen due to sector is running now...

mymoney wrote:Touching these 2 shares now is risky as I think, They are overheated and now need some cool down before continue it's uptrend... BALA, MADU is my choice for the next week...

ELPL,BOPL is stile silent..., But Buying pressure come to these two shares and price increase can happen due to sector is running now...

As western high getting higher prices than previous quarter, mal and ldev must have done exceptional this time hoping higher volumes . So if these 2 cool down and back a bit, it will be a great opportunity to collect more..

Sector is running... but no more talks except few members...

Extracted from lankem website

Sri Lanka ranks third among the world's largest producers of tea harvesting leaf widely accepted as superior in taste and fragrance by connoisseurs and commoners alike. Tea is also very much part of the national flavour. From being the island's favourite brew to the distinctive plantation landscape and colonial tradition, the socio-economic imprint of Ceylon Tea has inspired a special place in the already exotic national fabric.

Agarapatana Plantations Pvt Ltd is among the biggest plantations located in the Agras valley region in Sri Lanka. The plantation's holdings include historical properties like Dambatenne Estate situated in the Badulla district in the Uva province of Sri Lanka and ranges in elevation from 1509 m to 1936 m AMSL.

Dambatenne is intrinsically linked to the history of Ceylon tea. Sir Thomas Lipton acquired the property in the 1890s owning it until his demise in the early 1930s. Dambatenne was instrumental in the building of the Lipton Tea empire and, by association, the legacy of Ceylon Tea.

A harvest of nearly 1.5 million kg's of Black Tea each year makes it the largest quantity produced by any tea factory in Uva. These teas are sold under the "Bandara Eliya" garden mark and are still as sought after as in the days of Sir Thomas Lipton with prices bearing testimony to this fact.

Dambatenne Estate has a total land extent of 873 ha. comprising of Bandara Eliya, Dambatenne, Deaculla, Mousakellie and Mahakanda Divisions. The total revenue tea extent is 364.95 ha. Besides tea, fuel-wood (202.2 ha), thatch banks (1.00ha), jungle/patna (107.6 ha), watersheds (29.1ha) and buildings/roads (134.8 ha) make up the full land extent. Secondary forests make up the scattered areas.

"Lipton’s Seat" on Dambatenne’s Bandara Eliya Division, is the highest point in the Badulla district towering over a precipice with a sheer descent of 6000 feet featuring one of the most breathtaking views in the world.

Dambatenne Estate is influenced by two distinct - Uva and Wellawaya - climates rendering the estate's rich biodiversity.

Pita Ratmalie & Beauvais Estates

Pita Ratmalie and Beauvais Estates frequently supply their green leaf to the Dambatenne factory for manufacture. The two estates along with Dambatenne have received Rainforest Alliance Group Certification. Another group of estates is being developed for Rain Forest Alliance certification this year. Four factories are already certified with ISO 22000/HACCP food safety standards and thirteen of our properties have already been certified by the Ethical Tea Partnership in regard to human resources and working conditions.

Agarapatana Plantations has a total land extent of 6,688 hectares under cultivation which includes 6,361 hectares of mature tea and produce the Uva high-grown variety. This year's harvest produced 8,833,818 kg's in addition to another 1 million kg's of bought leaf from smallholdings.

28 fully-equipped factories handle the entire production process. While many manufacturing units are ISO 2000 certified, a current programme is underway to obtain both, HACCP certification and ISO 22000 (food grade) standards as well.

Our choice teas offer a bouquet of distinctive flavours and notes from being grown in a variety of elevations traversing agro-climatic zones. A selection of High, Low and Uva elevation teas such as orthodox/rotorvane, CTC or Leafy manufacture provide the cream of the crop. Although the auction system sells the bulk of our production, we welcome direct export orders for specialty-type teas.

Balangoda plantations moving strongly while Malwaththa continues. Lankem Developments going into a cooling off period. Altogether this week also we can assume a continuation of plantation rally.

Maskeliya plantations as well as Madulsima too will be in strong demand. Maskeliya can move close to 25/- and Madulsima close to 20/-, I guess.

CK wrote:Bala is my wish...

CK wrote:

mymoney wrote:Touching these 2 shares now is risky as I think, They are overheated and now need some cool down before continue it's uptrend... BALA, MADU is my choice for the next week...

ELPL,BOPL is stile silent..., But Buying pressure come to these two shares and price increase can happen due to sector is running now...

As western high getting higher prices than previous quarter, mal and ldev must have done exceptional this time hoping higher volumes . So if these 2 cool down and back a bit, it will be a great opportunity to collect more..

Again going strongly

The Invisible wrote:Maskeliya plantations as well as Madulsima too will be in strong demand. Maskeliya can move close to 25/- and Madulsima close to 20/-, I guess.

Closing in the targets. Santa has come early for us

The Invisible wrote:Balangoda plantations moving strongly while Malwaththa continues. Lankem Developments going into a cooling off period. Altogether this week also we can assume a continuation of plantation rally.

In fact all three moving super fast. LDEV has not showed any signs of cooling off yet.

ELPL also absorbed the higher supply at 30/=.

mymoney wrote:ELPL also absorbed the higher supply at 30/=.

Awakening sleeping giant...

mymoney wrote:

mymoney wrote:ELPL also absorbed the higher supply at 30/=.

Awakening sleeping giant...

High selling. but absorbing. Who can be the big seller/

Dr. senthilverl ??