Tuesday, February 15 2011
KUCHING: Sarawak Oil Palms Bhd (Sarawak Oil Palms) will experience double-digit fresh fruit bunch (FFB) growth at least until 2013, despite the absence of new planting activities.
In its research report, OSK Research Sdn Bhd (OSK Research) also said the FFB production growth would peak at 1.25 million tonnes in 2017. This meant that the company would enjoy steady earnings growth even if it chose not to expand its planted area.
Annual production should jump 86.3 per cent from 2010 levels in five years’ time based on statistics that implied 76.5 per cent of its tress in the immature or young mature categories.
In addition, the research house said production might double within five years, assuming the company continued planting at a 4,500 hectare (ha) annual rate.
On another note, looking at Sarawak Oil Palms 2010 FFB yield of 20.4 tonnes per ha, the research firm was surprised to learn that approximately 65 per cent of its planted area was peat soil.
One of its peat soil estates actually achieved 30 tonnes per ha last year – a performance almost comparable to that of mineral soil. Sarawak Oil Palms’ low-profile management had definitely proven itself as a peat soil specialist.
Furthermore, OSK Research said the company’s management came across as a team focused on the long-term interests by re-investing a large portion of current income into additional expansion.
Sarawak Oil Palms’ earnings retention rate had historically hovered at around 87 per cent, which unfortunately meant less than spectacular near-term dividends.
Where detailed production figures were concerned, the company’s FFB production had grown from 127,427 tonnes in 1993 to 659,895 tonnes in 2010; a compounded annual growth rate (CAGR) of 10.2 per cent.
Comparatively, Sarawak Oil Palms fared worse than IJM Plantations Bhd (IJM Plantations) and Genting Plantations Bhd (Genting Plantations) on a net profit per mature ha basis.
The company’s nine-month of the calendar year 2010 (9MCY10) net profit per mature ha came in at RM3,498 compared with IJM Plantations’ RM4,132 and Genting Plantations’ RM3,807, which was expected given Sarawak Oil Palms’ younger tree age profile.
Young mature trees (four to 10 years old) comprised 57.2 per cent of Sarawak Oil Palms’ total matured area, much higher than those of IJM Plantation and Genting Plantations which recorded 20.2 per cent and 23.3 per cent respectively.
This gap should narrow in the coming years as Sarawak Oil Palms’ trees matured. As oil palms typically hit peak production at 10 years old, there was still a lot of room for production growth of these young matures.
Nevertheless, on matters of replanting, there was a risk as 4,051 ha or seven per cent of Sarawak Oil Palms’ planted hectarage were above 20 years old. The company’s previous re-planting project lasted from 1997 to 2003 when it re-planted trees that were planted in the early to mid-70s.
If the company chose to embark on another round of re-planting to replace its older trees, FFB production growth might fall below the 10 per cent mark. Sarawak Oil Palms had stated that re-planting would only be considered when trees reached the age of 23 to 25.
The current batch of older trees were still giving good yield and the company said it would not embark on a full-blown re-planting programme, instead re-plant in stages if it chose to do so.
Considering the company’s double-digit FFB production growth potential and that only seven per cent of its planted area comprised trees due for re-planting, the research house estimated that even if it fully re-planted those trees within a year, FFB production growth should still safely clock in above six per cent.
OSK Research pegged Sarawak Oil Palms’ target price at RM5.22 per share.
(The Borneo Post)