Muar Ban Lee to double output amid rising demand

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This article first appeared in The Edge Financial Daily, on February 27, 2017.

 

KUALA LUMPUR: Muar Ban Lee Group Bhd (MBL), a palm kernel (PK) crushing machine manufacturer, has decided to build a new factory to double its production capacity after demand shot up recently as a result of higher oil palm prices.

Group chief executive officer Chua Heok Wee said MBL is looking for a land of at least 10 acres (4.05ha) in size adjacent to its current five-acre production facility in Muar, Johor.

“The existing factory is almost 90% utilised. If we want to grow, we need more machines, space and people,” he said in an interview with The Edge Financial Daily.

To set up the new factory, Chua expects to incur a capital expenditure of RM10 million, excluding land price.

“If we can find a place, let’s say about 12 acres, or at least 10 acres, then we will invest about RM10 million to RM12 million in the new factory,” he said.

The current factory, meanwhile, can be disposed of for “easily more than RM15 million” as the location is very good, he said, adding that the group would also consider renting out the facility.

In justifying the expansion, Chua said future demand for MBL products is “very bright”, especially in times when crude palm oil prices are strong.

According to the Malaysian Palm Oil Board, the current price of grade A fresh fruit bunches of about RM670 a tonne represents a 26% rise when compared with a year ago when the price was in the region of RM530.

With the continued uptrend in oil palm prices, Chua expects to see more palm oil refinery plants being established in Sabah and Sarawak, as well as Indonesia.

In Peninsular Malaysia, however, there is a sufficient number of refineries, as even the existing oil palm planted land is getting smaller.

“East Malaysia is the future. And the market in Indonesia is bigger than Malaysia, so this year we are bringing our products there, for them to upgrade with better extraction rate,” he said.

To cater to the market demand, Chua said MBL, which already commands a 40% market share globally, is also planning to buy land in Indonesian cities like Surabaya or Medan over the next two years, to set up a service centre for spare parts processing purposes.

“In the near future, we might process our own machines in Indonesia as well, to save transportation costs,” he added.

Chua is confident that MBL will be able to register a double-digit growth in revenue for the year ending Dec 31, 2017 (FY17), driven by its new associate company in Indonesia, besides new technology and products.

Last October, MBL announced the acquisition of a 33% stake in Indonesian PK crushing plant operator PT Banyuasin Nusantara Sejahtera.

“Acquisitions are the faster way to grow, if opportunities arise, we don’t mind buying more. As long as we have low gearing and our cash flow is very strong, we can invest to get more revenue and profit,” said Chua.

Chua, however, acknowledged that MBL faces a challenge in getting additional workers. To reduce the problem, the company is applying more automation to its production line.

“We have about 120 employees now. For this kind of scale, other competitors require at least 220 people. That is why we have the intention to set up production in Indonesia. But we cannot move all out, we have to test the water there first,” he added.

For the first nine months of FY16, MBL’s net profit more than doubled to RM7.96 million or 8.65 sen per share, from RM3.75 million or 4.08 sen per share previously, while revenue rose threefold to RM126.52 million from RM40.36 million.

MBL shares have been trading between 78 sen and RM1.16 over the past 52 weeks. The counter settled at RM1.12 last Friday, giving it a market capitalisation of RM102.44 million.