Chin Teck expects CPO prices to improve

KUALA LUMPUR: Chin Teck Plantations Bhd expects a “slight room” for crude palm oil (CPO) prices to improve this year, according to executive vice-chairman Goh Wei Lei.
“At the moment, it is at the lower band of the cycle because of lower global growth, but it should have a slight room to improve,” he told a press conference after the company’s AGM here yesterday.
CPO prices have rebounded in recent months on the back of the worst El Nino phenomenon in the past two decades, reducing the production of CPO.
CPO futures contract for April was down RM23 to RM2,480 a tonne.
Chin Teck saw its net profit drop 15.41% to RM30.47 million for the financial year ended Aug 31, 2015 (FY15) from RM36.02 million a year ago, due to lower CPO prices.
For the first quarter ended Nov 30, 2015, its net profit slumped 43.59% from RM10.61 million to RM5.99 million.
Commenting on its FY16 financial performance, Goh said the company is hoping for better results, but this is very much dependent on the CPO price movements.
Chin Teck is also currently working hard to find a long term resolution to issues which had led to the suspension of routine harvesting at its oil palm plantations in Indonesia for the last three years.
Harvesting was halted due to unrest in villages in the vicinity of the plantations.
Goh said while harvesting activities in several areas have started, it is equivalent to only 17% of its total planted area.
“We’re trying hard to solve the problem and we’ve engaged with the local authorities.
“We believe the return on investment should be pretty good if we can cover back,” Goh said, but declined to give a timeline for the resolution of its issues.
Given that more than 40% of Chin Teck’s oil palm has reached 20 years and above, it will undertake a replanting exercise involving 960 hectares of land this year.
Asked of expansion plans, he said the company will embark on landbanking activities should opportunities arise.
“We’ve not found what we want. We’re looking at land in Indonesia, we don’t rule out East Malaysia, but nothing on the table yet,” Goh added.
Currently Chin Teck has RM220 million in cash and bank balances.
Business diversification is not an option for Chin Teck despite facing difficulties in its business operations in Indonesia.
“We are still a very pure plantation player. We will stick to our core business in oil palm plantations... we will do what we are good at,” Goh said, noting that the company has no plans to venture into the downstream oil palm business.
Its Indonesian business is undertaken through a joint venture entity, of which it has an effective stake of 35%.
Most of Chin Teck’s landbank is located in Indonesia measuring 21,224 hectares, with another 10,925 hectares in Malaysia.