This article first appeared in The Edge Malaysia Weekly on June 28, 2021 - July 4, 2021

IN an interview in December 2017, TDM Bhd’s then group managing director Datuk Mohamat Muda unveiled the group’s plan to be among the top 100 listed companies on Bursa Malaysia by 2022, and to have a market capitalisation of at least RM2 billion.

He also aimed for the Terengganu state-owned company to achieve a revenue of RM1 billion and a pre-tax profit of RM200 million by that year. To reach these targets, TDM planned to invest RM1 billion in its plantation and healthcare services businesses.

Fast forward to 2021, and with just a year away from its target, TDM is beset with troubles, ranging from the resignation of its two top executives in late 2020 and early this year, to the revocation of its plantation licences in Indonesia.

To recap, on June 18, TDM announced on Bursa Malaysia’s website that its Indonesian subsidiary PT Sawit Rezki Abadi (PTSRA) had received the revocation letter on June 11 from the regent of the Melawi municipality, Kalimantan Barat, Indonesia.

Under the Izin Urus Pekebunan (IUP) licence issued by the regency, PTSRA had the right to plant 10,000ha of land in Melawi with oil palm. However, since receiving the IUP in 2015, TDM had yet to develop the land, which led to the revocation of the licence. This is just one of the many challenges TDM has been facing over the last two years.

The company is also way behind in achieving its financial targets under the five-year plan, and was still chalking up losses up to the financial year ended Dec 31, 2020 (FY2020), when it reported a net loss of RM12.25 million on revenue of RM442.9 million.

In fact, since the interview in 2017, TDM has never made a profit. It reported a huge net lose of RM123.2 million in FY2018 and RM209.9 million in FY2019, which were attributed to the losses at its discontinued operations.

So, will the path forward be any clearer for TDM?

Judging from the current situation, it is hard to say. First, since the resignation of Zainal Abidin Shariff as group CEO on Nov 27, 2020, the position remains vacant.

His resignation came under the spotlight as not only was he on the job for just slightly more than a year, but TDM also announced that his resignation was due to disagreements with group chairman Raja Datuk Idris Kamaruddin over trade contract issues, practices and queries involving its subsidiary’s palm oil trading activities.

TDM also does not have a chief financial officer. Amir Mohd Hafiz Amir Khalid resigned as CFO, effective Feb 28, to pursue other career opportunities. At the moment, executive director Najman Kamaruddin is the top executive at TDM.

Operation-wise, the group has been suffering from declining crude palm oil (CPO) production. In the first five months of the year, its CPO production declined 27.6% to 20,693.4 tonnes, compared with 28,588.56 tonnes in the same period last year. Fresh fruit bunch (FFB) production also declined during the period by 23.8% year on year (y-o-y).

In its financial results for the quarter ended March 31, 2021 (1QFY2021), TDM says its plantation division recorded a 5% increase in revenue, mainly due to higher CPO and palm kernel (PK) prices during the quarter. However, it could not benefit from the higher prices as much as it should have, as there was a 25% y-o-y reduction in sales during the quarter, owing to the lower FFB production and lower oil extraction rate (OER).

In 1QFY2021, TDM’s OER stood at 19.04% compared with 19.3% in 1QFY2020. Its OER has been on a decline — FY2020 OER was 19.49%, lower than FY2019’s 19.68%. In FY2018, its OER was 19.32%.

On average, its OER in Peninsular Malaysia in 2020 stood at 19.69%, which was also lower than the average rate of 19.93% in 2019. The average OER in January to May this year in the peninsula stood at 19.43%, according to data from the Malaysian Palm Oil Board.

One of the reasons for the low FFB production in 1QFY2021 was due to the floods and heavy rains that affected the East Coast of the peninsula during the quarter, says TDM in its financial results for the quarter.

According to its website, the company has 44,380ha of planted oil palm plantations, of which 33,653ha or 75.8% are located in Terengganu while the rest are in Kalimantan Barat, Indonesia.

The 10,727ha of planted oil palm land in Kalimantan Barat was earmarked for disposal in 2018 and 2019. In February 2020, TDM announced that its assets in Kalimantan Barat was being acquired by PT Aragon Agro Pratama for US$50 million. The deal, however, fell through in August last year. Nevertheless, TDM is still committed to disposing of the assets.

The disposal of the Kalimantan Barat assets will make TDM a wholly Terengganu-based planter in a state where floods and heavy rain are an annual occurrence. It is not known whether there is a plan to expand outside of its native state for its plantation business.

Questions sent to TDM on the resignation of its top executives, plan to dispose of its assets in Kalimantan Barat and the reason for the revocation of its IUP by the Indonesian authorities went unanswered as at press time.

Nevertheless, according to TDM in a June 20 statement, it has been putting a lot of effort to replant, targeting for the group’s plantations to reach an ideal oil palm age profile by 2025.

The group maintains a replanting policy of 5% of its total planted area annually. However, it has initiated a higher replanting exercise for the 2019-2022 period by replanting between 3% and 4% more.

Between 2014 and 2019, TDM had spent a total of RM170.5 million in replanting exercises. As a result, the number of immature and young mature trees has gradually increased, and this will potentially improve its oil palm yield in the long run, its says in the June 20 statement.

In FY2020, the group spent about RM37.9 million for replanting, covering an area of 2,740ha, or 8.8% of the total planted area, against 1,946ha in the previous year. The increase in replanting area was also supported by the acquisition of Bukit Bidong Estate, which is planted with younger palms ranging from two to 12 years old. With that, the group has successfully increased the proportion of its immature and young areas from 31% in FY2019 to 44% in FY2020.

TDM has set a target of having at least 40% young prime trees in its estates by 2025, saying that it expects to be able to sharply increase its FFB yield from there onwards.

Aside from the plantation business, TDM is also involved in the healthcare business, and operates four hospitals in Peninsular Malaysia and a specialist centre in Tawau, Sabah. The segment contributed 45.7% to the group’s revenue in FY2020.

TDM’s share price closed 33% lower year to date at 24.5 sen last Thursday, valuing the group at RM422 million.

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