Oriental plans bigger capex

It will spend RM157mil for plantation ops

GEORGE TOWN: Oriental Holdings Bhd will spend RM157mil on its plantation business this year compared with RM139.9mil in 2016, covering the cost of new planting and the construction of an office, staff quarters and a palm oil mill.

According to its annual report, the group plans to set up a fourth crude palm oil (CPO) mill, the first in South Sumatra, Indonesia, which will be commissioned by the end of 2018 with a capacity of 60 tonnes per hour.

In Indonesia, the group operates three mills in Pulau Bangka, with a combined operating capacity of 240 tonnes per hour.

In 2016, the group processed 739,491 tonnes of total fresh fruit bunches (FFB), a drop of 13% compared with 851,328 tonnes in the preceding year due to lower FFB production from its own estates.

Moving forward, Oriental’s strategy is to replant 400ha of oil palm.

“As for new planting activities in Indonesia, we have planted 8,878ha to date and are targeting to plant about 2,000ha each year in the next three years.

“Infield mechanisation for harvesting, manuring and upkeep has been incorporated to minimise manpower dependency and help increase productivity,” the report added.

“In 2016, we replanted 1,432ha of oil palm with our own high-yielding materials, which included clonal palms for Malaysian plantations,” it said.

The group is striving to further consolidate its plantation operations in Indonesia with a critical review of its current land bank and focus on the expansion of planted acreage.

This will be achieved by acquiring planted areas and plantation companies that fit its technical specifications and affordability.

Oriental is optimistic that its FFB production will remain intact in 2017 despite the volatility in commodity prices, while adverse weather conditions experienced over the past years are likely to continue to have a bearing on crop yields.

“This sentiment is on the back of more sizeable areas that would come into maturity over the course of the year, coupled with the ongoing progress of existing mature areas into higher-yielding brackets,” it said.

The company said the long-term outlook for palm oil is promising, as it remained a vital source in setting much of the world’s dietary and energy requirements.

Besides its nutritional value, palm oil also held vast potential as a renewable energy source, it said.

“Therefore, global demand for palm products is expected to continue to rise,” it added.

On its automotive division, the group has invested in a new 2S centre with body and paint facilities in Melaka.

According to the report, the strategy is to leverage on its existing market reputation to expand and upgrade its showrooms and service centres, including its presence in Sabah and Sarawak. “Our outlet in Johor Baru, which has the largest 4S centre in the country, commenced operations in November 2016,” the report said.

The group’s automotive, plantation and other segments contributed 73%, 9% and 18%, respectively, to its 2016 revenue.

According to the report, the plantation business faced numerous challenges in 2016, which included the haze, El Nino, a depreciating ringgit, competition and rising operational costs.

To ensure continued delivery, Oriental has initiated cost-control measures such as reorganising harvesting operations, optimising the usage of vehicles and quality control for field works.

Over the years, the group has expanded its land bank, which has increased to 93,377ha, of which 38,503ha have been planted with oil palm trees.

About 33,663ha are in Pulau Bangka and South Sumatra, while the remaining 4,840ha are in Pahang and Negri Sembilan.