This article first appeared in The Edge Financial Daily on May 31, 2019

KUALA LUMPUR: Hap Seng Consolidated Bhd, whose earnings were hit by soft crude palm oil (CPO) prices in the last financial year 2018 (FY18) ended Dec 31, 2018, expects improvement in its plantation business going forward.

Group managing director Datuk Edward Lee Ming Foo believes the future of the plantation industry remains bright given the world population growth and continued demand for the competitive edible oil.

“Last year, prices were already low. So impacts were already felt last year. Going forward, it can only improve.

“It is now a matter of riding through the down cycle,” Lee told reporters after the group’s annual general meeting yesterday, adding that CPO prices per tonne are seen to hover around the RM2,000 to RM2,300 range in the near term.

Without divulging further, he said the group also intends to reduce some of the capital expenditure (capex) that can be delayed. “Some capex is good to have but not really essential.”

The high inventory level has put a cap on CPO prices, in addition to the negative news flow vis-à-vis palm oil biodiesel ban by Europe, and rising trade war tension. The benchmark contract for August delivery fell RM22 to trade at RM2,083 a tonne yesterday.

The subdued palm oil prices, together with soft market condition affecting the group’s building material division, dragged Hap Seng Consolidated’s operating profit down in FY18.

Its plantation division was the only division that did not register annual revenue growth. The division’s operating profit shrank by 75% to RM37.2 million from RM146.9 million in FY17.

Lee said the group will also be taking advantage of competitive construction costs to build more investment properties, given the slowdown seen in its property development division.

The group currently has total land bank measuring 2,416 acres (977.7ha) spread across East Malaysia and the Klang Valley.

It is currently in the initial planning stages for the construction of its second hotel, located near the Malaysia International Trade and Exhibition Centre here.

Construction for the group’s first hotel, Hyatt Centric in Kota Kinabalu, Sabah, with a gross development cost of RM275 million, is ongoing with completion targeted by the third quarter of 2021.

Meanwhile, Menara Hap Seng 3 — comprising 20 storeys of office space, retail podiums, basement car park and designed with an integrated state-of-the-art Mercedes-Benz dealership — is slated for completion by end-2019.

For its property development segment, the group has RM6.5 billion worth in gross development value under planning, realisable over the next seven to eight years.