PPB evolving into global giant


  • Business
  • Monday, 12 May 2003

BY KATHY FONG

THE low profile PPB Group Bhd, a Malaysian flagship company of the Kuok family, is evolving into a global conglomerate as it continues to cultivate future growth. 

“We are positioning ourselves to be a global conglomerate through organic growth, acquisitions and mergers, as well as joint ventures,'' group executive chairman Ong Ie Cheong told StarBiz during an interview. 

Currently, a large portion of its revenue comes from local operations. 

Ong le Cheong

Over the decades, PPB Group has been constantly exploring new sources of growth but not the expense of its principle of being involved in wholesome sectors, thus ruling out tobacco and gambling. 

The group has grown from just a sugar cane cultivation and sugar refining operation to a conglomerate whose core activities include flour and feed milling, oil palm plantations, entertainment, property development and even environmental engineering and waste management.  

When it was listed on the KLSE and Singapore Stock Exchange in May 1972 under the name Perlis Plantations Bhd, its issued and paid-up capital was RM15mil.  

PPB Group's paid-up capital has now expanded to RM490.6mil. Its total assets have grown to more than RM5bil and its workforce now exceeds 15,000. 

But it is definitely not resting on its laurels.  

“We are expanding, we are not static there,'' said Ong, who started his career in Malayan Sugar Manufacturing Co Bhd (a wholly-owned unit of PPB Group) and has been with the group for more than 30 years. 

PPB Group earnings have mainly been derived from essential foods businesses – flour milling and sugar and palm oil refining.  

Foods, including sugar refining and flour milling, are the largest income generator for the group, accounting for 59% of its pre-tax profit, followed by commodity trading 12.5% and plantations 10.7%.  

Some years back, PPB Group realised that it could not count solely on the domestic foods businesses for its long-term survival because the industry had reached maturity, said Ong. 

So it adopted a two-pronged strategy, including penetrating new markets, particularly developing nations where essential foods business has much room for growth as the core business remains important to PPB Group. 

Another part of the strategy is venturing into new business areas as a platform for future growth. 

PPB Group's flour milling arm FFM Bhd crossed the border four years ago to set up milling facilities in Vietnam. And Vietnam will serve as a stepping stone into the Indochina market. 

It also plans to venture into China and other Asean countries.  

Going forward, PPB Group has decided to spread its wings in environment engineering and waste management activities after having explored several potential businesses such as medical.  

“We notice that the governments in developing countries spend heavily on infrastructure building as these countries progress forward,'' said Ong, adding that PPB Group wanted to get a slice of that growing pie in Asia.  

Its 55%-owned subsidiary Chemquest Sdn Bhd manages the water engineering and solid waste management projects of the group. (Kuok Brothers Sdn Bhd is the remaining stake owner in Chemquest.) 

Chemquest is a 25% shareholder of Konsortium Abass Sdn Bhd which has a 30-year concession to operate and manage the entire Sungai Semenyih water supply scheme. 

The company has completed RM180mil worth of projects, a relatively small amount compared with that of other infrastructure players.  

Ong said the group needed time to turn the engineering division into a significant income generator. 

Chemquest posted a pre-tax profit of RM14.7mil in its financial year ended Dec 31 last year. It con- tributed merely 5% to PPB Group pre-tax profit.  

According to Ong, the group targets to boost contribution from engineering activities to as much as 25% in five years. 

“We will nurture the engineering division through acquisitions and joint ventures. We will tie up with well-known names to enter China. There is enormous growth potential for infrastructure development,” Ong said.  

The group, in a joint venture with a French partner, is tendering for a sewerage water treatment project in Beijing. 

But the Severe Acute Respiratory Syndrome (SARS) outbreak has delayed the tender exercise for environment engineering projects in China. 

Ong said the group would resume negotiations once the outbreak had been contained. 

PPB Group is a stock that hardly appears on analysts' radar screen. And only a small group of analysts has coverage on PPB Oil Palms Bhd. 

One reason is that the group's management and shareholders tend to lie low.  

It is also because analysts find that food/flour businesses are less appealing, given the small growth potential which is very much in line with the population growth. Furthermore, the profit margin is rather slim. 

PPB Group is well aware of these views. Hence, it has stringent cost control regime and prudent hedging of raw materials to widen profit margin. (Raw materials account for 70% of production costs.) 

Ong said the group also continually upgraded its plant and machinery to improve efficiency and capitalise on economies of scale by being the largest producer in the core businesses.  

Apart from that, the management regularly reviews its business portfolio. The group will divest loss-making activities that drag down its performance.  

It has sold its shareholding in Shangri-La Hotel Bhd and also its stake in RA PPB (Tops) Retail Sdn Bhd that owned the Tops supermarket chain. It has now decided to dispose of its glove manufacturing in Indonesia that has been hit by high latex price and fierce competition. 

Ong said that ten years from now the group would not rely solely on its domestic core businesses. PPB Group earnings base would be even more diversified geographically and also in terms of business activities, he added. 

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