PLANTATION group Kulim (M) Bhd has an important task: to quickly replace its newly disposed 63,260ha plantation estates in Kalimantan, Indonesia, with higher yield plantation land in Papua New Guinea (PNG) and the Solomon Islands.
Managing director Ahamad Mohamad said the group would be actively looking at acquiring either green fields or existing oil palm plantations overseas from this year onwards.
“These acquisitions will have to have more hectarage than the plantation assets we sold (in Indonesia) and an announcement will be made later this year,” he said.
Ahamad told StarBiz in an interview in Kuala Lumpur that investments in oil palm plantation in Indonesia would no longer be in the group's immediate planning horizon.
“We have been bombarded with questions on our decision to get out of Indonesia when many other planters are starting to grow big in the republic,” he said.
Ahamad explained that many failed to realise that Kulim had better alternatives - in the form of its existing vast oil palm plantation investments in PNG and the Solomons.
“It is not a question of getting out of Indonesia. We have calculated the numbers by comparing potential returns in Indonesia, PNG and the Solomons based on planting an additional 20,000ha for a 20-year period,” he said.
For Indonesia, Kulim has capped its potential return at US$122mil based on crude palm oil (CPO) price of US$550 per tonne while the group's potential return in PNG was higher at US$187mil.
Ahamad said: “The big disparity in the returns based on our calculations was the main reason why we want to get out. Why waste efforts in Indonesia when we can concentrate in PNG and the Solomons where we can get higher returns?”
He said, however, that Malaysian plantation companies should continue venturing into Indonesia because “undeniably” there wasplenty of good land bank for oil palm cultivation.
“For Kulim, investments in PNG and the Solomons have been good and hopefully will continue to give good returns in years ahead,” Ahamad added.
For economies of scale, Kulim planned to double its PNG land bank size to over 80,000ha in the next 10 years from 44,714ha currently, he said.
He said the group could also easily top up the plantation land bank in the Solomons to 15,000ha from 6,594ha currently.
“We are in active discussions with landowners in the Solomons who seriously want Kulim to help develop their land. Many are impressed with our oil palm plantation there,” said Ahamad.
He pointed out that Kulim's future growth in planted areas would be largely driven by its overseas operations. He said Kulim had introduced a system whereby landowners in PNG and the Solomons would be paid about RM120 equivalent per ha per year.
In addition, they will be paid quit rent and 10 sen for one kg of fruits they harvest.
“This will be a model that we want to introduce in newly acquired plantation land bank overseas,” he added.
In Indonesia, plantation companies have to give an outright payment to the landowners with the land price averaging between US$400 and US$500 per ha depending on location.
“In certain cases, the land can fetch as high as US$1,000 per ha if one is investing in Sumatra, a popular location for oil palm plantations among local companies,” he added.
On the local front, Kulim will continue to focus on its 31,422ha plantation land located mainly in Johor as well as its oleochemicals and quick-service restaurant operations.
“We are always on the lookout for opportunities closely related to our existing core businesses and at the right price,” said Ahamad. For the next few years, he expects plantations to continue being the group's major contributor to profits while its oleochemicals and quick service restaurants businesses build up momentum.
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