A mid size growing oil palm plantation company, combine with private healthcare business, provide an excellent business diversification since oil palm plantation is a cyclical business and hospital operation is a non cyclical business. Oil palm plantation is affected by season and nature and it's earning fluctuated wildly throughout the year, while the number of patient visiting hospital is more or less very stable. These 2 businesses complement each other by smoothing out the earning fluctuation of the company. In addition, these 2 sectors are among the most promising sectors in this decade.
The rising population and reducing poverty in India and China, mainly, provide sustainable increasing demand for oil palm. Moreover, the risk of planting is higher now with the constant uncertain weather condition recently. Any bad weather will destroy the crops and reduce the supply, thus drive up the price of the crops. This risk will ensure the crop's price remain high. For healthcare industry, the population in southeast Asia is growing older, combine with the increase of population, increase of disposable income, increase of social net about healthcare, increase of awareness of healthcare as their education level increase, all of these poise well for healthcare industry in the region.
TDM, with the similar league in term of plantation land and growing prospect with other mid size plantation companies like IJM plantation, Ta Ann, TH plantation, only priced at 7 times earning whereas its competitor are all priced within the range of 10 to 15 times earning. Viewing also healthcare industry price to earning ratio of 20 to 30 times in average, although healthcare only contribute 10 to 15% of TDM's earning now, a combine price earning ratio of 7 times of TDM is ridiculously low in my view. In future, the management can always adjust the mix of the 2 businesses depending of the prospect of each sector. When a desireable mix is achieve in future, I believe the full value of the company will be unlocked.
Although TDM is a Terrenganu state own company, and people may say it contains political risk, it's successful transformation in recent years has proved the ability of its management of steering the company in correct growing path. I believe prospect is bright for TDM in years to come. And the recent plunge of earning and plunge of share price present a very good entry point and hefty margin of safety, to participate in the growth story of TDM.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. I may already have positions in the above mentioned counter. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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