04/02/2012 (The Star) - The emergence of a formidable world’s largest agro-commodities conglomerate from the proposed merger of 15 state-owned plantation companies in Indonesia as well as a planned listing for the merged entity, has set the industry abuzz with excitement.

Market analysts are generally positive over the merger exercise to be spearheaded PT Perkebunan Nusantara 3 (PTPN 3), the parent company for the merged plantation groups.

The soon-to-be merged PTPN plantation companies are involved in the production commercial valued commodities – crude palm oil (CPO), rubber, cocoa, coffee, sugarcane, tea and tobacco with total assets estimated at US$5.6bil.

PTPN 3 is also heavily involved downstream operations such as oleochemicals, biodiesel and cooking oil.

“The PTPNs in Indonesia are tailored almost similar to the Felda schemes in Malaysia,” said industry consultant M.R. Chandran.

He said: “Thanks mostly to the good CPO prices and Indonesia’s sprawling plantation landbank, the PTPNs over the years were able to make good progress in the profitable plantation business.”

Like Malaysia’s Felda schemes, he said the PTPN 1 to PTPN 14 were scattered with concentration in Sumatra, Kalimantan and West Java.

Chandran said: “What makes the PTPN merged entity and the listing status interesting is that the industry will now see a big worthy player in the agro-commodity sector to rival regional mega planters like Sime Darby Bhd and Wilmar International Ltd.”

The PTPN merged entity has a commendable revenue close to US$5bil and a sizeable annual CPO production of about 800,000 tonnes from a landbank size of one million hectares.

While Sime Darby’s total yearly CPO production both in Malaysia and Indonesia can possibly match the production of the PTPN merged entity currently, he said: “Moving forward, with better management and efficient planting, the PTPN merged entity can boost their yields to higher levels than Sime Darby and Wilmar.”

Chandran said: “I believe that the successful merger of local GLC-linked plantation companies Kumpulan Guthrie Bhd, Golden Hope Plantations Bhd and Sime Darby as well as the impending listing of Felda unit, Felda Global Ventures Holdings Bhd have paved the way for the Indonesian Government to seriously look at merging its plantation units.”

He also said the merging of PTPNs and listing the merged entity was timely given the current steady CPO prices amid potential tight supply, increasing world demand and the food crisis situation.

Chandran expects CPO price to stay bullish and possibly hit US$1,500 per tonne in the next five years.

Meanwhile, an analyst with a local brokerage said the Indonesian government was attempting to enhance its plantation sector by way of merging the different smaller entities to form a larger entity, which would be more centralised and attain better economies of scale.

“Upstream-wise, the merged PTPN entity will go far. However, there will be a need to boost both their millings and logistics capacity to rival those of Sime Darby and Wilmar which already have strong presence internationally,” he added.

The impact on other foreign planters setting their eyes for plantation landbank in Indonesia would be “the existing scarce landbank in the republic will be even harder to acquire or more expensive to procure.”

Singapore-based Philip Futures Ltd investment analyst Ker Chung Yang expects the merged plantation conglomerate to be similar to Felda’s mission; that is to generate higher income for the rural planters.

“In terms of operation, we need some more time to observe,” he said, adding that however, the outcome may be challenging from geographical point of view.

Ker concurred that the PTPN merger could further limit the landbank available for Malaysian plantation players in Indonesia.

Notably, Indonesia owned the largest agricultural landbank in the region. Both Malaysian and Singaporean players needed to leverage on the landbanks in Indonesia to expand and grow, he added.