MKH Bhd group executive chairman Tan Sri Alex Chen Kooi Chiew
PETALING JAYA: MKH Oil Palm (East Kalimantan) Bhd (MKHOP) is poised to capitalise on the spillover effects emanating from the new Indonesian capital, Nusantara, aligning with the company’s expansion strategy through its upcoming Main Market listing.
Late last year, MKH Bhd
, listed under the property sector on Bursa Malaysia, obtained approval from its shareholders to list its subsidiary MKHOP, which is involved in oil palm plantation.
Based on an indicative initial public offering (IPO) price of 60 sen per share, MKHOP is expected to raise RM132mil from the public issue, with 70.5% of it to be used for expanding the oil palm plantation business and optimising fresh fruit bunch (FFB) harvesting and palm oil milling activities.
MKH executive chairman Tan Sri Alex Chen Kooi Chiew said the listing of MKHOP will unlock value for the group’s plantation business.
“With the proceeds from the IPO and the strong cash flow generated from its operations, as well as MKHOP’s ability to raise bank borrowings, MKHOP will be able to accelerate its expansion programme by acquiring more land bank for oil palm plantation,” he told StarBiz.
According to Chen, the group’s plantation arm, MKHOP, has a cash reserve of about RM88mil, with zero bank gearing, providing capacity for its future expansion.
Currently, the group’s oil palm plantation is about 18,200 hectares, located within 100km of the new capital Nusantara, where the construction projects are proceeding in full swing.
Expanding on the group’s post-listing strategy, Chen said potential land bank for an oil palm plantation have been identified in the sub-district of East Kalimantan, covering more than 5,000 hectares, which is located within the vicinity of Nusantara.
Pending successful negotiations and a feasibility study for MKHOP, he anticipates the acquisition to be finalised by the end of this year.
Chen said MKHOP is optimistic about the future development of Nusantara and is set to embrace the vast potential spillover effects.
Shedding light on his past journey, Chen said that at the age of 30, he acquired a 300-acre land of young palm plantation in Tanjung Sepat, Selangor, for RM720,000.
“After two years, following the rehabilitation for the plantation to recover in a good condition, I got back my investment capital and I sold the land for RM2.2mil.
“I have gained tremendous experience through this investment and it set a firm foundation for our plantation business,” he said.
Following that, he believes the palm oil business is good but did not get the opportunity for suitable land for oil palm plantation.
The opportunity for the group to venture into oil palm presented itself when, at the age of 65, Chen identified oil palm plantation land in East Kalimantan, Indonesia.
Asked if the group will consider plantation land in Malaysia, he said he would love to but it must be a land that suits the group’s requirements.
Regarding the timing of the group’s listing, Chen explained that the decision to list its plantation arm is driven by MKHOP’s performance reaching a significant stage, with the aim of expansion.
Chen also anticipates the relocation of Indonesia’s new capital city to Nusantara in East Kalimantan will unveil an unparalleled canvas of investment and business prospects throughout the region.
He said there would be an increasing inflow of highly educated civil servants and business professionals to Nusantara, which is expected to bring in high skills and quality investment to the local communities.
“The relocation of capital will pave the way for greater development in East Kalimantan, fostering high-value economic activities,” he added.
Chen believes the listing exercise would allow MKHOP to operate independently and to be more professional, in particular in the aspects of expansion, decision making and matters of financing for facilitating future growth.
Addressing production costs, Chen said they are well-controlled. “Of course, we use mechanisation to maintain our cost and profit margins,” he said.
Chen said the group’s current level of plantation mechanisation stands at around 40%.
“We aim to increase it to a level of greater efficiency to reduce our dependence on labour and simultaneously making it easier to control cost,” he added.
When asked about margins, he said it entirely depends on the price of palm oil, which is closely linked to supply and demand dynamics.
“Throughout the years, we have learned that fluctuations in crude palm oil (CPO) prices are normal,” he said, adding that despite the price and production fluctuations, the group has managed to maintain double-digit profit margin.
Currently, MKHOP has two oil palm plantation estates with a total plantation area of 18,200 hectares, one palm oil mill and a jetty located in East Kalimantan, Indonesia.
The harvested FFB in the plantation estates are processed in its CPO mill to produce CPO and palm kernel (PK), which are then sold to customers.
When asked if the end products are for exports or domestic use, Chen clarified that it is sold to local refineries.
MKHOP sells its CPO to downstream refineries in Indonesia for further processing into palm-based edible oils and oleochemical products.
Discussing the potential for exports, Chen said that conditions, like the size of plantations and production capacity, need to be substantial.
“Typically, about 80,000 to 100,000 hectares of land are required to supply CPO to the refinery for export. Given the current size of our land, our focus is on producing CPO for downstream local markets,” he said.
MKHOP’s CPO mill, located within the plantation estate, has a processing capacity of 90 tonnes of FFB per hour.
Post-IPO, the group will have its own PK crushing mill ready, which will further increase its revenue.
Chen added that currently, MKHOP enjoys a high FFB yield ranging between 26 and 28 tonnes per hectare per year, with a favourable age profile of trees, where 92.7% of them are in the prime mature stage.
On the future demand for CPO, Chen said the market is growing significantly, primarily due to the multi-usage nature of oil palm for both edible oil and biodiesel and other purposes.
“Our investment in Indonesian plantations provides a solid platform for growth. With the foundation established, we are actively seeking more investment opportunities in Indonesia,” Chen said.
Asked if he, as an investor, would look for property development opportunities in Indonesia, Chen replied: “As a developer, we are currently eyeing strategic and significant land size for sustainable integrated development such as property, industrial, logistics and warehouses in the vicinity of Nusantara region.”
MKHOP signed an underwriting agreement with M&A Securities Sdn Bhd and Kenanga Investment Bank Bhd for its listing on Bursa Malaysia on Feb 21, 2024.
