Thursday, 4 December 2008

Plantation firms to buy more land

Wednesday December 3, 2008 The StarOnline Malaysia

Plantation firms to buy more land

CPO price downtrend provides opening for expansion

PETALING JAYA: Cash-rich local plantation companies will actively expand their land bank within the next five years via acquisitions of green fields, existing oil palm plantations and distressed planters.

Analysts believe the current downtrend in the crude palm oil (CPO) prices would provide local planters the advantage in sourcing for more attractively priced plantation land in favourite locations like Sabah, Sarawak and Indonesia.

The commodity boom over the past five years saw many tier-one and tier-two local planters accumulating healthy cash in the range of RM450mil to over RM1.4bil.

Of late, plantation giants like IOI Corp Bhd, Sime Darby Bhd and Kuala Lumpur Kepong Bhd, which each has a cash pile of over RM1bil, have indicated strong intentions to progressively expand plantation hectarage.
Major planters like Kulim (M) Bhd, Hap Seng Plantations Bhd, IJM Plantations Bhd, Asiatic Development Bhd and Ta Ann Holdings Bhd are also in the midst of acquiring more land bank.

Jupiter Securities head of research Pong Teng Siew told StarBiz that plantation companies had not been actively paying out the best dividends, particularly last year.

“Many seem to be hoarding their cash to embark on new land bank acquisitions.”

Production gain is slow in production.
Said Pong: “Planters need to grow by acquiring more land bank and progressively undertake replanting activities with high yielding clones.”
He concurred that land bank acquisition was the major strategy of local oil palm planters.

In Sabah, plantation land can fetch up to RM15,000 to RM16,000 per acre currently compared with only RM5,000 per acre in the late 1990s.
Sarawak plantation land is even higher at RM18,000 to RM20,000 per acre.
As for Indonesia, the land price is about half Sabah’s prices.

Pong said the major obstacle faced by most Malaysian plantation companies in the republic was mainly the land ownership issue despite the availability of huge tracks of plantation land.

IOI Corp group executive chairman Tan Sri Lee Shin Cheng recently said the group was keen to acquire more land in Malaysia rather than Indonesia.

Given the current market uncertainties, we prefer to increase our land bank in Malaysia but in Indonesia, we will continue with new planting efforts,” he added.

His view was shared by Hap Seng Plantations group managing director Edward Lee Ming Foo.

Lee was quoted recently as saying that Hap Seng Plantations was looking at expanding its acreage in Sabah, where most of its plantations are located.
Planters that are still gung-ho over Indonesia’s prospects include IJM Plantations and Sime Darby.

Sime Darby group chief executive Datuk Seri Ahmad Zubir Murshid said recently the group was eyeing green field plantations in Indonesia. It will also consider buying distressed plantation companies.