Better days for oil palm investors


  • Business
  • Monday, 03 Feb 2003

BY HANIM ADNAN

MALAYSIAN plantation companies with interests in oil palm plantations in Indonesia will be in a better position to reap good profits from their long-term investments for financial year 2003-2004, thanks to rising crude palm oil (CPO) prices and anticipation of higher oil extraction rate from matured palm hectarage. 

One plantation analyst said “early bird'' companies which started venturing during the 1994 and 1995 period could actually start realising the fruits of their foray especially those having matured palm trees aged eight years and above, and particularly those situated in the Kalimantan and Sumatra region. 

To date, among the active Malaysian plantation companies in Indonesia are Kumpulan Guthrie Bhd, Kuala Lumpur Kepong Bhd (KLK), Golden Hope Plantations Bhd, PPB Oil Palms Bhd and Austral Enterprise Bhd. 

(It is also interesting to note that prominent plantation player, IOI Corp Bhd, does not have any oil palm plantations in Indonesia).  

KLK, which is considered an excellent proxy to ride the plantation sector boom, derives 65% of its group earnings from plantations.  

Its matured areas would grow by 6% per annum as more trees are harvested from KLK's Indonesia and Sabah estates. 

“Stronger CPO prices and matured areas are expected to lift plantation profits by 35% to RM257mil in financial year 2003,” said the analyst.  

“With net cash of over RM350mil, the group can easily expand its plantation landbank if the right acquisition comes along.” 

Recently, KLK, via its subsidiary KLK (Mauritus) International Ltd, acquired a 95% stake in Indonesia-based PT Parit Sembada, which has 3,990ha in Belitung Island. The land is believed to be adjacent to KLK's existing 14,065ha in Belitung Island. 

Meanwhile, AmResearch in its notes said Malaysian plantation companies with interests in Indonesia had so far been quite prudent in their choice of locations such as in Sumatra and Kalimantan, which could be considered “fairly safe” areas. 

PPB Oil, for example, is believed to be in the midst of examining several land acquisition options in Indonesia.  

Recently, the group announced the acquisition of a 90% stake in an Indonesian company, which owns a 32,200ha land in Kalimantan for RM7.6mil, which translated into an inexpensive amount of RM262 per ha. 

The research unit said: “Although we expect PPB Oil's Indonesian estates to continue registering pre-tax losses averaging RM2mil to RM3mil per annum, we expect it to break even by financial year 2003/2004.” 

Despite this short term factor, AmResearch said PPB Oil investments in Indonesia would prove beneficial in the longer term due to the lower cost of production, which is about 20% lower than in Malaysia, and higher oil extraction rates of about 10% in Indonesia. 

Excluding the new acquisition, PPB Oil has 15,511ha in Kalimantan and 10,216ha in Sumatra. 

Another significant case of Indonesia oil palm venture is Kumpulan Guthrie, which currently has a total of 199,667ha in the Kalimantan-Sulawesi and Sumatra region. 

The group continues to remain confident of its investments in Indonesia, especially the Minamas Plantations, which many critics say had turned Guthrie into a highly geared group posting a net loss of RM70.3mil in 2001, with the losses mainly stemming from the plantation division. 

Its group chief executive, Tan Sri Abdul Khalid Ibrahim, had recently said Guthrie's Minamas Plantation was expected to bring in good returns this year, given the current good CPO prices and the group's focus on productivity improvement. 

Kumpulan Guthrie estimates the production cost in Indonesia to be 30% lower than Malaysia, which was also said to be the cheapest among all the palm oil producing countries. 

According to Malaysian Palm Oil Association chief executive M.R. Chandran, the looming shortages in landbank for oil palm cultivation in Malaysia will continue to drive major plantation companies to hunt for larger pieces of land abroad, particularly in neighbouring Indonesia. 

The maximum “planted area” is estimated at 4.2 million ha in Malaysia, and to date, the local plantation sector has already taken up about 3.5 million ha.  

The remaining 700,000 ha available are located in east Malaysia, of which Sarawak has 500,000 ha.  

In fact, when Indonesia deregulated its foreign investment sector and streamlined its bureaucracy in 1994, Malaysian plantation companies had made forays into the republic where 40% of the 5.5 million ha reserved for oil palm is earmarked for foreign investment. 

It is believed that 59 Malaysian companies had invested in the Indonesian oil palm plantation sector between 1994 and 1995. However, this number shrank to 27 in 1997-1998.  

“At that time, these companies had to deal with frequent lootings and lawlessness as Indonesia struggled to overcome its worst political and economic crisis in decades,” Chandran added. 

He estimated that there were currently less than 15 active Malaysian companies with palm oil plantation interests in Indonesia. 

Chandran said about 10 years ago, Malaysian companies' investment in Indonesian plantations was estimated at US$800mil. 

“Now, I believe it should increase significantly, particularly with Kumpulan Guthrie Bhd's RM1.3bil acquisition of Minamas Plantations which has 200,000ha in 2001,” he added.  

He estimated Malaysian companies' investments in Indonesian palm oil plantations at US$1.2bil. 

According to Chandran, MPOA advocated local plantation companies to actively take part in the upstream sector (palm oil plantations). 

However, he said Malaysia companies with existing interests in the plantation sector now seem more keen to consolidate their position: “I don't expect to see many new players until the country's economic and political turmoil becomes more favourable”. 

“However, there is opportunity to further expand in a sustainable manner in Indonesia, particularly those early birds which have had the exposure and experience investing in oil palm plantations there,” he added.  

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