EN ROUTE for an ACE Market listing on Bursa Malaysia this Jan 17, plantation group Matang Bhd is truly one of the success stories championed by MCA.
The dynamic vision of MCA to consolidate small Chinese businesses since early 1970s saw the fruitation of big corporations such as Multi-Purpose Holdings Bhd (now known as Magnum Bhd) in 1975 and later between 1978 and 1981, Aik Hua Holdings Bhd was set up by Selangor MCA, Panwa Development Bhd by Pahang MCA and Peak Hua Holdings Bhd by Perak MCA and Matang Holdings Bhd by Johor MCA.
Matang’s wholly owned subsidiary Matang Holdings, under the guidance of Johor-based MCA, has successfully galvanised the investment of a group of smallholders for the company’s involvement in the thriving oil palm industry.
Now with about 1,096ha of oil palm estates under its belt, the board of Matang Holdings has deemed it as timely to undertake an initial public offering (IPO) exercise under a special purpose vehicle, Matang Bhd.
In November 2016, Matang had completed the exchange of shares and thereafter, Matang Holdings and its subsidiaries became the wholly owned subsidiaries of Matang.
Prior to the exchange of shares exercise, Matang Holdings has 18,629 shareholders with 120 million shares, of which some have been holding on to the shares since 1981.
In many ways, the timing for Matang’s listing can also be considered as perfect, given the current conducive environment whereby the local crude palm oil (CPO) prices are trading above RM3,000 per tonne, low palm oil inventory levels, weaker ringgit against the US dollar as well as the Government’s biodiesel mandate which will continue to support CPO prices.
According to Matang chairman Datuk Teh Kean Ming, coupled with competent management capabilities, geographical merits, young age profile of plantation and usage of high quality seeds, Matang has a superior fresh fruit bunches (FFB) yields.
For the previous years, its FFB yield was higher than the average yield recorded in Malaysia hitting about 25 million tonnes per hectare per year during its good time.
Despite being a new kid on the block within the listed oil palm fraternity, Teh tells StarBizWeek that Matang is positioning itself to transform from a small player into a mid-tiered sustainable pure plantation group with strong productivity and efficient track record, going forward.
“As a small player, we are taking baby steps in the oil palm industry and will need to be nimble with our growth expansion programme,” explains Teh.
But having said that, Matang has strong growth prospects to turn into a reputable planter, given the financial flexibility to undertake future expansion from the RM16.9mil proceeds from its IPO exercise, says Teh, who is former IJM Corp Bhd CEO and Managing Director with the experience of managing IJM Plantation division.
Of the total IPO proceeds, RM11.92mil (or 70.5%) will be allocated for general working capital requirements to finance Matang’s operations over the next five years.
Another RM2.55mil (or 15.1%) will be allocated for capital expenditure to enhance the operational effectiveness of Matang’s estates, and RM250,000 (or 1.5%) will be used for a replanting exercise to further improve the oil palm trees’ age profile of Matang estate.
The remaining RM2.18mil (or 12.9%) will be used to defray listing expenses for the IPO.
While Matang will not be looking at acquiring new land bank for expansion anytime soon, Teh points out that the plantation group is set to focus on improving the efficiency and productivity of its existing estates in Johor within the next three to five years.
“Some 30 years ago, we bought brown field that was first planted with rubber and oil palm later fully converted it into oil palm in 1996,” explains Teh, adding that the immediate plan is to undertake replanting and improving the FFB yields in the estates.
Of the group’s tree age profile, over 77% are categorised as palm trees with mature production from five to 20 years of age.
Another 20% are palm trees going into maturity from one to four years of age which will start producing FFB soon.
“At the same time, about 1.5% or 16.44ha of our estates have old palm trees which are over 21 years old,” he says.
“Our strategy is to undertake active replanting activities, particularly for old trees that are 21 to 25 years old, with good planting materials such as Felda Yangambi seedlings,” Teh says.
“As part of a sustainable business, we want to plan ahead for replanting to improve the age profile of the oil palm trees.
“Ideally, for example, we would like to have 50% to 60% (of total trees) at their peak age, with a further 30% to 40% coming into their peak and then 5% to 10% (up) for replanting,” he explains.
For Matang, it is paramount to have a good mixed of palm trees age profile to ensure uninterrupted continuous supply of FFB.
“Our FFB yields are better than the average industry level ,” he says, adding that for the past four years, the group’s yield has been consistent with the exception of the 2015-2016 period as the El Nino weather episode has affected the production of FFB in all oil palm estates nationwide.
Teh further elaborates that Matang will strictly focus on purely managing its estates and improving the FFB yields.
“The immediate main focus will be handling our water flow system and further improving the infrastructure such as roads and transportation in our estate.
“As a small player with a small hectarage, we are comfortable to be an FFB producer. Right now, we are most happy supplying our FFB to two palm oil mills in Johor of which the nearest one is within 8km radius from our estates.
“And we probably will need a mill once our hectarage touches 10,000ha, going forward,” adds Teh.
At the same time, the bulk of Matang’s cost of production of about 40% to 60% is on fertilisers.
Teh says fertilisers input is important, especially on the young palm oil trees.
“But if our FFB yield improves further, we also expect our cost of production will come down further.
According to Teh, Matang group has been generating commendable revenue of about RM7.4mil to RM9.4mil with the exception of last year as the El Nino weather pattern disrupted its FFB production, leading to lower revenue of about RM7.2mil.
Aside from its plantation operations, the company has exposure in the property segment. It owns the Larkin Investment Property comprising three detached buildings at Kawasan Perindustrian Larkin in Johor Bahru with a total land area of 1.29ha. The property has been leased to multiple tenants for rental income.
Additionally, it owns a vacant plot of land in Tangkak, Johor. Funds raised from the IPO would be mainly used for general working capital to finance Matang and its subsidiaries day-to-day operations.
The listing will see Matang issuing 130 million new shares at a par value of 10 sen each with an issue price of 13 sen per share.
Post-listing, the company will have a paid-up capital of 1.81 billion shares and an anticipated market capitalisation of about RM235.30mil, based on the IPO reference price of 13 sen per share.
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