Property developer Metro Kajang Bhd took the plunge and ventured into the plantation sector two years ago when prices were on the rise. With asset prices generally lower now, they are looking at expanding their plantation landbank in Kalimantan, Indonesia.
Leveraging the experience of its executive chairman Datuk Alex Chen Kooi Chiew who has 18 years’ experience in the plantation sector, the company, which also has operations in livestock, has so far invested RM220 million in buying and developing plantations in Kalimantan. The funds were mainly internally generated, with bank borrowings of US$26 million (RM94 million).According to Chen, this is just the beginning.
“We are scouting for more land within the vicinity of our oil palm estate in east Kalimantan for further expansion,” Chen tells The Edge.
While most Malaysian plantation estates fetch a yield of 25 tonnes of fresh fruit bunches (FFB) per hectare, he says those in east Kalimantan are able to obtain an even higher yield, estimated at 30 tonnes of FFB per hectare.
“Our land there and the surrounding areas are flat, with slight undulation. Coupled with good soil and climate conditions, the crops are expected to generate higher yields,” says Chen.
Metro Kajang is expecting contributions from its plantation division to start rolling in from 2012 and feels that it will become a major earnings contributor to the group in the future.
“We are looking at a return on investment (ROI) of at least 15% annually, from 2012 onwards,” he says.
The company entered the plantation sector when it acquired the entire equity interest in Labuan-based SJL Utama Pte Ltd for RM24 million in December 2007. SJL owns a 94.99% stake in Indonesia’s PT Khaleda Agroprima Malindo, which was issued a 35-year land title for an oil palm plantation of 15,942.6ha in east Kalimantan and has an option to renew the title for another 25 years.
According to Chen, the project there is progressing well, with some 3,500ha of oil palm trees planted to date. The company is targeting at planting another 6,800ha by end-2009.
Metro Kajang also has plans to build an oil mill there. “We will commence construction of the palm oil mill by the end of this year. It is estimated to cost RM35 million,’’ says Chen. The mill can produce 45 tonnes of palm oil per hour.As at Dec 31, 2008, Metro Kajang’s cash and cash equivalent stand at RM93.3 million, while long-term borrowings amount to RM92.05 million.
Although primarily known as a property developer, Metro Kajang also has a local livestock division that is growing fast.For FY2008 ended Sept 30, Metro Kajang recorded a net profit of RM51.44 million, of which about 6% came from the livestock division. In the 1Q of its current year operations (from October to December last year), the company’s livestock division contributed about 10% of its profit before tax of RM15.1 million.
Chen says the livestock division is expected to fetch a ROI of 20% annually, while the pig abattoir business’ ROI is anticipated at 10% per annum. The company invested RM30 million in the livestock and food processing business in 2005 and is the only licensed and privatised pig abattoir in Malaysia.
Whether the stock market will attach a higher valuation for a diversified Metro Kajang will primarily rest on its ability to deliver results from its diversification exercise. But a good thing about the move is that it shields Metro Kajang from its dependence on the property market.
Among the company’s property projects slated for launching this year is the Kajang II township. Spanning 110ha of freehold land close to Kajang town centre, this is a high-end integrated township, with a total estimated GDV of RM1.4 billion and will be completed over the next five to seven years, says Chen.
He adds that Metro Kajang will kick-start the project with 80 superlink houses and 32 semi-detached houses in the later part of 2009. Chen believes that despite the economic downturn, there is a market for those who would like to own houses in the Kajang II township. Metro Kajang bought the land last year for RM90 million.
Later this year, Metro Kajang is also launching an extension of the Pelangi Semenyih project in Ulu Langat, Selangor. This is an integrated township development comprising single and double-storey houses and shoplots. With an estimated GDV of RM335 million and to be developed over seven years, Pelangi Semenyih caters for the medium-range property market. The company paid RM31.9 million for the 67ha land for this project.
This article appeared in the Corporate page, The Edge Malaysia, Issue 750, April 13-19, 2009.