not vested
Historic first for United Malacca BY SHARIDAN M. ALI
It was a long-time coming but United Malacca Bhd (UMB) finally took the step the other big plantation companies have done for years.
The conservative plantation company surprised the market by moving to acquire 83% in Kalimantan-based Indonesian planter PT Lifere Agro Kapuas for US$66.4mil (RM285.02mil).
Apart from buying plantation land overseas for the first time, UMB is borrowing money to part finance the deal. That is another milestone as the company has never taken on debt for expansion since it was set up in 1910.
Deal wise, it seems like a good bet for it not only where pricing is concerned but also location-wise, fitting in well with its plantation profile.
The proposed deal announced earlier this week is slated to be completed in the first quarter of next year, pending Bank Negara approval.
Although the proposed acquisition represents a premium of 8.2% to the market value of the land (based on the 83% effective equity interest), UMB chief executive officer Peter Benjamin tells StarBizWeek that it is a good deal. This is in terms of pricing relative to the location of the land, infrastructure and relevant licences already obtained.
“It is located just two hours from the nearest city and the land is equipped with the necessary infrastructure.
“I would say it is quite a good deal as far as pricing is concerned, translating into US$3,000 per ha in general and about US$4,700 per ha in terms of planted areas.”
It is also a well-known fact that Kalimantan is an established area for oil palm as opposed to the other overseas locations beyond Malaysian shores.
Cash-rich and debt-free UMB will partly finance the proposed acquisition with a term loan it secured from OCBC Bank (M) Bhd for up to US$50mil (RM214.6mil).
The remaining portion will be financed via the group’s internal funds. As at Oct 31, the company had cash and cash equivalents of RM 69.72mil.
OCBC Bank Ltd is also the company’s major shareholder with a 14.14% stake.
The proposed acquisition would include 350ha for a refinery and bulking station located in Kalimantan Tengah and would expedite the company’s upstream expansion, as some 10,366ha have already been planted, with about 10,140ha being less than five years old.
“This acquisition is good for UMB in the long term. Investment in oil palm plantations is always with a long-term view and strategy. The crude palm oil (CPO) price trend has been fluctuating over the years. It has been predicted that the prices will improve next year with the downtrend in production,” Benjamin points out.
Plantation giants such as United Plantations Bhd and Sime Darby Plantations Bhd already have substantial operations in Kalimantan.
According to a back-of-the-envelope calculation that solely looks at price per ha, it has been reported that UMB seems to be getting a sweeter deal than the one struck between Felda Global Ventures Holdings Bhd (FGV) and the Rajawali Group.
FGV had proposed to buy a 37% stake in PT Eagle High Plantations Tbk for US$680mil (RM2.93bil).
Eagle High is reported to own 425,000ha of landbank, with 67% in Kalimantan and the rest in the Papua, Sulawesi and Sumatra provinces. This means that a 100% stake of US$1.84bil translates into US$4,324 (RM18,672) per ha.
Benjamin adds that with the increase in the world’s population and demand for vegetable oils, the prospects of CPO are very good.
“Prices will increase next year with lower production. We predict the average CPO price for 2016 to be around RM2,400 per tonne. We expect this to continue into 2017, unless crude prices start moving up,” he says.
According to MIDF Research, CPO prices are expected to benefit from the weak ringgit and surge above RM2,500 per tonne in the first quarter of 2016.
“We believe that a weak ringgit should lead to improved CPO competitiveness against other vegetable oils, especially soybean oil,” says the research house, adding that it has maintained a “positive” rating on the sector.
The CPO three-month futures had lost RM5 to RM2,380 per tonne as at press time yesterday, reflecting a high jump from its six-month low of RM1,867 per tonne recorded on Aug 26.
On age profile, Benjamin says that the age profile of PT Lifere Agro is below five years for the planted area of almost 10,000ha.
“Planted areas are only coming into maturity effective 2016. This bodes well for UMB.
“Our target is a high yield and a high oil extraction rate (OER) - that is the direction of UMB. Our current OER is about 20.5% and yield is 21 tonnes per ha.
“The average age profile of UMB is now nine years and PT Lifere Agro is three years. Hence, for the group, it is six years post-acquisition. Hence, the majority of our area is in the prime age profile with an upward trend in our yields in the coming years,” he says.
According to UMB’s 2015 annual report, about 53% of its oil palm is in prime production (eight to 15 years), while 14% is on an increasing yield trend (four to seven years) and 26% is immature (less than four years).
UMB posted an 11.8% decline in net profit to RM12.25mil for its second quarter ended Oct 30 from RM13.69mil previously, hit by lower fresh fruit bunch (FFB) production.
Revenue for the quarter fell 15.4% to RM49.87mil from RM58.96mil in the same quarter last year.
UMB’s earnings per share for the quarter was at 5.86 sen, while net asset per share stood at RM8.10.
Cumulatively, for the first six months of its financial year ending April 31, 2016 (FY16), the company posted a 8% drop in net profit to RM24.55mil from RM26.44mil previously due to lower average prices of CPO and palm kernel although it produced higher FFB.
Its revenue for the period declined to RM107.79mil from RM117.2mil previously.
Despite the decline in net profit, the company will be paying an eight-sen first interim single-tier dividend for its FY16, which is the same as last year.
Shares in UMB were hovering at RM5.95 as at press time yesterday, down one sen or 0.17%.
Source: The Star