Kulim is involved in oil palm plantations, the manufacture of oleochemicals and biodiesel as well as the quick service restaurant business. It is 53.7%-owned by Johor Corp Group, which is ultimately controlled by the Johor government. Kulim’s plantation operations span the three countries of Malaysia, Papua New Guinea and the Solomon Islands (see Table 1 for its area and planting profile as at Dec 31, 2008).

What makes Kulim unique among its plantation peers (operating mainly in Malaysia and Indonesia) is its successful venture into oil palm plantations in PNG and the Solomon Islands. Its ownership of these plantations is via a 50.75% stake in London-listed New Britain Palm Oil Ltd (NBPOL), which was listed on the London Stock Exchange in December 2007. CEO Nick Thompson has been with the company since 1984 and has extensive knowledge of plantation development and oil palm seed research.

NBPOL still has over 40,000ha of unplanted plantation land and is planting at a rate of 4,000ha to 5,000ha per year. It is also a world-class producer of oil palm seeds.

Through its 76.3% ownership of QSR Brands Bhd, Kulim is involved in the food and restaurant business. The company’s operations range from poultry processing and breeding right down to restaurants and stores. Familiar brand names operated by QSR are KFC, Pizza Hut, Ayamas and Rasamas. KFC is the largest contributor in this division and is still growing despite the economic slowdown. It has also ventured into the promising Indian market by spending US$6 million on opening 10 outlets in Mumbai and two in Pune.

Kulim’s mature hectarage will enjoy the fastest growth in percentage terms among all the major plantations in Malaysia. This is because over 18,000ha, representing 22% of its planted area of 82,644ha, are immature plantations (one to three years old). Kulim’s yield should also improve as 28% of its planted hectarage consists of maturing trees between the ages of four and eight.

It is by far the largest plantation operator in PNG where fertile soil and good management have combined to ensure superior yields of more than 30 tonnes of fresh fruit bunches per hectare for palms over the age of six. As other plantation companies fight over land in Kalimantan, Kulim (through NBPOL) will be able to source good plantation land at attractive prices in PNG.

NBPOL’s operations in PNG have been certified as conforming to the Roundtable on Sustainable Palm Oil (RSPO). It will complete its first refinery in Liverpool, UK, by the end of March 2010 to supply RSPO-certified palm oil directly to food and personal care companies such as Unilever instead of via middlemen such as Cargill. Its oleochemical division, NatOleo, posted a RM37 million loss in 4Q2008 due to defaulted contracts committed at higher prices. There are likely to be some losses from defaulted contracts in 1Q2009 but with tighter credit terms and a more careful choice of customers, such defaults are likely to diminish from 2Q2009.

Kulim, trading at a prospective FY2009 PER of 8.2 times, is cheap compared to other larger plantation companies. It is trading below its sum-of-parts valuation per share of RM8.67 (see Table 2) and below its net tangible assets per share of RM9.75. Its rating is low despite the fact that its plantation earnings are expected to grow faster than those of larger plantations due to its faster percentage rise in production.

Choong Khuat Hock is head of stock research and a partner at Kumpulan Sentiasa Cemerlang Sdn Bhd, a fund management company. KSC may own shares in some of the companies covered by the writer.

This article appeared in The Edge Malaysia, Issue 754, May 11-17, 2009