BINTULU: Sarawak Oil Palms Bhd (SOPB) (fundamental: 1.4; valuation: 1.8) is not seeking to expand its land bank this year as it sees that the plantation industry is fraught with challenges that will particularly affect the downstream activities of palm oil companies.
It is for this same reason that the group is only expecting flat growth in its revenue for the financial year ending Dec 31, 2015.
“I think the downstream [sector] has been challenging these past two years. [So] we are not expanding. In terms of revenue, [this year will be] about the same as last year,” SOPB group chief operating officer Eric Kiu Kwong Seng told reporters after Plantation Industries and Commodities Minister Datuk Amar Douglas Uggah Embas officiated at the opening of the group’s biodiesel plant here on Saturday.
The new plant was developed by the company’s subsidiary, SOP Green Energy Sdn Bhd, and cost RM50 million. It is also the first biodiesel plant in Sarawak, with an annual operating capacity of 100,000 tonnes.
“The outlook for this year will still be challenging [because for] all commodities, their prices have fallen,” said Kiu. He said the group remains open to expansion opportunities, provided that the price is right. For example, the group has visited Indonesia several times, but has not identified suitable opportunities. “It all depends on the opportunity. If the value is right, we are always open. If the value is not right, then we are not hard-up for any acquisitions,” he said.
SOPB currently has 63,000ha of plantations in Sarawak. The group has yet to expand its plantations beyond the state.
Its group chief executive officer Paul Wong Hee Kwong said the group is now consolidating its business and is therefore careful in choosing new areas to expand to. “Instead, we are looking at tightening our sustainable practices,” he said.
SOPB entered into a joint venture with Pelita Holdings Sdn Bhd (PHSB) in October 2011 for the development of some 1,646ha of native customary rights (NCR) land in Sungai Arang, Bakong, in Miri, Sarawak into oil palm plantations.But the deal fell through on June 30 last year when SOPB, PHSB and the NCR landowners involved were unable to create sufficient land bank after months of negotiations.
Another deal that fell through was SOPB’s proposed acquisition of a 60% stake in DD Pelita Sebungan Plantation Sdn Bhd and Mutiara Pelita Genaan Plantation Sdn Bhd from Double Dynasty Sdn Bhd (DDSB) and Mutiara Hartabumi Sdn Bhd (MHSB) for RM134.9 million.
The acquisition was mooted in March last year, but SOPB on Dec 17 said the deal was off after the vendors failed to get the authorities’ nod for the sale and transfer of their sale shares, which was one of the conditions precedent to their conditional share sale agreement (SSA). Under the conditional SSA, there was also an arrangement to contract DDSB and MHSB for their services to “procure the natives with up to 8,000ha of NCR land to come within the Sarawak government’s scheme for the development of this land into oil palm plantations”, at RM3,500 per ha.
“We were hoping to involve the local community in the project and [one of] the preceding conditions of the deal was that they would be able to obtain approvals from the necessary authorities,” said Wong. “They [DDSB and MHSB] were given a deadline [to obtain the approvals] but they couldn’t fulfil the condition,” he added.
Shares in SOPB closed unchanged at RM5.70 yesterday, bringing it a market capitalisation of RM2.51 billion.
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This article first appeared in The Edge Financial Daily, on January 20, 2015.