Pricing Agribusiness Risk

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Indonesian Palm Oil Sector Consolidation: A Wave of Consolidation To Come

Indonesian palm oil production assets have become too cheap: KLK’s unsolicited offer for MP Evans looks likely to change all that.

Above $550/mt FOB, or $770 CIF Rotterdam, the production of palm oil is a profitable business for commercially scaled and efficient Indonesian producers. At higher prices, palm oil production businesses are quite literally ‘money pumps’. The KLK bid for MP Evans will have jolted the investment community to take note that many quality names, like MP Evans, are or have been trading below replacement value. At the offer price for MP Evans, KLK could expect to earn a return of up to 16.5% on every hectare purchased. In an era of negative bond rates, considering that the megatrend of human population may push beyond 9bn to 12bn by the end of this century, noting that although slowing, the Chinese economy is now by some measures the largest in the world and still young, palm oil assets look anomalously cheap.

Please click to download: Indonesian Palm Oil Sector Consolidation