KUALA LUMPUR: In the face of volatile commodity prices, billionaire Robert Kuok's PPB Group Bhd said its financials for 2011 would be affected by escalating fuel costs and fluctuating currency exchange rates.
“These are the main challenging factors, but the outlook for consumer demand in Malaysia and the Asian region remains encouraging and PPB Group is optimistic that the performance for 2011 will be satisfactory,” said PBB Group Bhd managing director Tan Gee Sooi in an analyst and media briefing yesterday.
Despite wading in choppy waters, the group is moving full steam ahead to double its milling capacity in Indonesia from 1,000 tonnes to 2,000 tonnes by the end of next year at its Pundi Kencana flour mill in Chilegon, about 80 km away from Jakarta.
“The outlook is bright but only outside Malaysia, as the market in Malaysia is already reaching saturation, while in Indonesia, you can expand as much as you want but it is still not enough, the pocket to fill is just too big,” he said.
PBB's Indonesian operations which started in 2009 are still relatively small compared with its direct competitor, Salim Group's flour business held under PT Indofood Sukses Makmur's Bogasari which controls an installed capacity of about 16,000 tonnes per day and dominates over 50% market share, PPB's flour milling arm, FFM Bhd managing director Ong Hung Hock said the group's strategy is to provide a good product mix in terms of prices and flour quality to retain its existing clients as well as attracting new ones.
“Comparing to Bogeswari, we are still relatively small and new, but amid fluctuating market demands, we are still doing fairly well,” he said.
He said that the potential in Indonesia was still big where an increase in one kg in terms of flour consumption per capita would be sizeable considering that Indonesia has a population of 230 million, while in contrast, Malaysia has a higher flour consumption per capita at 35kg but only a population of about 28 million.
The group has allocated about RM267mil as capital expenditure, of which about RM100mil will be used for its Indonesian mill capacity expansion plans, while a partial amount will be used for facilities upgrading in its Vietnam mill.
Currently, its Indonesian flour mill operations contributes about 17% to its total revenue while Vietnam with a 400-tonne mill contributes about 9%, it also runs a 400-tonne mill in Thailand.
For its first half ended June 30, 2011, the group recorded a lower net profit of RM560.4mil compared with RM608.3mil in the previous corresponding period, excluding a one-off gain on sale of its sugar related assets of RM838mil to Felda Global Ventures Sdn Bhd last year, while revenue climbed 15.8% to RM1.256bil from RM1.085bil previously.
PPB is also expanding its presence into China via a collaboration with Wilmar International Ltd after selling a 20% stake of its subsidiary FMM to Wilmar.
Updating on its China venture, he said the group is currently talking about only one flour mill, while the rest are still in the pipeline.
“The documentation process is quite an intensive exercise, and once we have completed that one mill, the rest will have a template to follow, so hopefully, after the first one we will have a much speedier process,” said chief financial officer Leong Choy Ying.
However, she did not reveal the production capacity of the mills.
Leong only said that the group would be announcing the developments over the next two years, but she indicated that the mills would be big in terms of capacity.