Better days ahead for Chin Teck Plantations?

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KUALA LUMPUR: Chin Teck Plantations Bhd is hoping to see an end to the unrest plaguing its Indonesian joint venture plantation this year.

“The situation in Indonesia is progressing. The authorities are trying to resolve the problem ... We hope to have it resolved this year,” executive director Goh Wei Lei told a press conference after the company AGM last Thursday.

A land dispute that erupted at the beginning of last year among the villages in the vicinity of  the company’s joint venture  plantation has caused the suspension of harvesting.“Harvesting of the oil palm trees has been suspended since the unrest broke out,” said Goh.

Based on the company’s 2012 annual report, the disruption at the plantation resulted in an overall loss for the company of RM247,000 from its share in the joint venture. The company also had to account for some RM906,732 in its income statement for damage to inventories and estate property due to the unrest.

For its financial year ended Aug 30, 2011 (FY11), the Indonesian plantation contributed profit before tax (PBT) of RM10.4 million, or 10.86%, to  the plantations group’s PBT of RM95.77 million.

Adding to the plantation company’s woes was the decrease in average selling price (ASP) of fresh fruit bunch, crude palm oil (CPO) and palm kernels in FY12 compared with the previous years.

The decline in ASP of its output dragged the company’s revenue down by 16.83% to RM119.22 million in FY12 from RM143.34 million in FY11.

CPO prices came under intense compression last year as inventory soared to record high levels. As at end-December, CPO stockpiles grew 2.4% month-on-month, hitting 2.63 million tonnes, the highest for the fourth consecutive month.

Reflecting the continued compression of CPO prices, Chin Teck’s net profit for the first quarter (1Q) of FY13 ended Nov 30, 2012 came in at RM11.58 million on revenue of RM29.61 million. A year ago, it recorded net profit of RM15.3 million against revenue of RM32.47 million.  According to analysts, the outlook of CPO prices does not seem rosy for now.

“While bumpy, we expect sustained palm oil price recovery in the first half of 2013 (1H13), but prices could weaken again in 2H13 on strong year-on-year supply growth,” said a HwangDBS Research report.

RHB Research said in a note in January that it is maintaining its CPO price assumption of RM2,800 per tonne for 2013.

“Although CPO prices have recovered slightly since last month, on the back of higher crude oil prices and expectations of lower CPO stock levels as production tapers off post peak production season, this recovery has been weaker than expected,” it said.  It might prove to be a challenge for Chin Teck, whose performance largely depends on palm oil ASP.

“Our company’s performance is dependent on the prices of palm oil. If the price goes up, we will have better performance as well,” said Goh.

Chin Teck has a total planted area of 10,925ha in Malaysia, of which 76.73% are mature trees and 23.27% immature.  Its 21,122ha of joint venture plantation in Indonesia consists of 88.69% mature trees while the remaining 11.31% are immature.

Its management is not worried about the Indonesian CPO export tax which was increased from 7.5% to 9%.

“We refine our CPO locally in Indonesia, so we will not be affected by this export tax,” said Goh.

On land acquisitions, Goh said the company is always on the lookout for more land locally and overseas.

“When the opportunity arises, we will move in. For now, there isn’t any potential land that we are looking at,” he said.

As at 1QFY13, the company had a healthy cash pile of RM225.98 million with zero debt. The stock closed unchanged at RM8.80 last Friday.

 

This article first appeared in The Edge Financial Daily, on February 4, 2013.

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