PETALING JAYA: Plantation and palm oil milling group Kim Loong Resources Bhd expects to reap the earnings from its biogas power supply to the national grid by financial year 2020.
According to managing director Gooi Seong Heen, the group’s biogas plant at its palm oil mill in Kota Tinggi, Johor, has completed the connection to the grid and started to supply power since May this year.
Kim Loong has received approvals from the Sustainable Energy Development Authority (Seda) to supply a combined 3.8 MW power generated from its palm oil mills in Kota Tinggi and Keningau, Sabah.
“We are targeting to complete the implementation and commence the supply of power from another Seda’s Feed-in Tariff (FiT) project at our Keningau mill in Sabah to the grid by the second quarter of next year, ” he added.
Gooi told StarBiz that the expansion into biogas and power generation is expected to provide an additional revenue to the group.
Therefore, Kim Loong plans to generate power from biogas for sale to Tenaga Nasional Bhd and Sabah Electricity Sdn Bhd grid from all its mills in Kota Tinggi, Keningau and Telupid.
“Upon successful implementation, at full capacity, we hope to receive an earnings boost by between RM5mil and RM6mil per year from each mill, ” said Gooi.
Kim Loong has also recently submitted tender for 1.5 MW quota for its Telupid mill.
JF Apex Securities, in its recent report, foresees slightly better outlook for Kim Loong in view of the earnings boost from the sale of biogas-generated electricity.
“Contribution from renewable energy is expected to kick-in by the second half of financial year 2020 (FY20), which will improve the group’s earnings, ” said the research unit.
On its plantation business, JF Apex said Kim Loong is looking to acquire more oil palm land bank to expand on its fresh fruit bunch (FFB) production capacity.
In view of the government’s initiative to curb rising greenfield oil palm land, it said the group would only be able to acquire the existing brownfield land, which is deemed expensive.
Gooi pointed out that “Our group’s current cash position is healthy with very low gearing ratio.”
“However, should there be opportunities for new acquisition of land bank of suitable size 5, 000ha to 10, 000ha, then the group would expect to undertake borrowings in addition to our current cash reserves, ” he added.
At the same time, the group’s plantation is undergoing replanting activities progressively, which is expected to impact its FFB production in the next few years, said Gooi.
“Therefore, should the crude palm oil price (CPO) rebounce back to RM2, 500 per tonne level in the next three to five years, we expect earnings from plantation and milling operations to be comparable while earnings from the sale of renewable energy under the Seda FiT projects may be around 10% of group’s earnings, ” said Gooi.
According to JF Apex, Kim Loong’s replanting activities is expected to go on for the next five to six years.
In FY19, the group has carried out replanting of about 680ha. Going forward, it is expected to replant about 800ha in FY20.
“We understand that the replanting cost incurred could be around RM12, 000 to RM15, 000 per ha before turning mature, ” said the research unit.
It is also learnt that the group is still in the midst of getting licence for another palm oil mill in Sarawak but the timeline has not been set.
To date, the utilisation rates for its three existing palm oil mills are at maximum capacities, with 1.5 million tonnes in FFB input.
Kim Loong group managed to produce 329, 489 tonnes of CPO in FY19, which was equivalent to a CPO oil extraction rate of 21.78%.
Meanwhile, Gooi said the group would need to have another palm oil mill, going forward.
“Under the circumstance of palm oil mill shortage, the crop from our estate would need to queue for a long time, especially during peak season. Therefore, the group has been looking at setting up a mill near it estates.
“We also expect good profitability based on our expertise in palm oil milling.”
On the CPO price performance for this year, he expects it would be lacklustre with the possibility of some improvement in the second half of this year.
“But it will all depend on external factors such as the US-China trade war resolution, crude oil prices as well as the weather conditions in the US and South America for CPO competitor, the soybean.”