24/04/2017 (The Star Online) - PETALING JAYA: There is increasing appetite for local plantation companies to acquire existing oil palm plantations to expand their hectarages.

Since late last year, local planters with deep pockets have been snapping up more brownfield oil palm plantations in Malaysia instead of greenfields as part of their landbank expansion and value creation.

Industry expert M.R. Chandran said the current preference for brownfields among big plantation companies are mostly due to major changes in the global oil palm sustainability requirement scene.

“Strict moratorium imposed on new oil palm planting in Indonesia as well as the EU Parliament’s latest call for a single Certified Sustainable Palm Oil scheme for Europe-bound palm and other vegetable oil exports are putting off local planters’ interest to develop new oil palm cultivation on greenfields,” he told StarBiz recently.

Last week, KUB Malaysia Bhd proposed to acquire 1,534ha brownfield oil palm plantation land in Sg Kinabatangan, Sabah.

Matang Bhd, meanwhile, has put in a bid for two parcels of leasehold oil palm land measuring about 4,219.79 acres, with a 60-tonne per hour palm oil mill in Raub, Pahang.

Boustead Plantations Bhd is also looking to acquire new plantation areas within Malaysia to compensate for the loss of its plantation land which were either sold or converted into property development.

Similarly, top planter Kuala Lumpur Kepong Bhd (KLK) is said to be eyeing for merger and acquisition targets in the plantation sector after its unsuccessful RM2.3bil takeover bid of London-listed MP Evans Plc last year.

It was recently reported that the company’s ideal target would be companies with brownfield plantation landbank of a decent age and good fresh fruit bunch yields.

Sibu-based Ta Ann Holdings Bhd paid RM211.14mil for a 100% stake in Agrogreen Ventures Sdn Bhd, which has 5,280ha of brownfield plantation land in Stungkor, Sarawak, in October last year.

According to Chandran, there could be quite a number of oil palm estates owned by small plantation companies in Indonesia and Malaysia that will be up for sale this year.

“As new players, many small planters cannot cope with the rising cost of production (COP). For start-ups, their COP could be as high as RM2,000 per tonne of crude palm oil (CPO), especially due to their young palm trees.

“Poor plantation management also saw many inefficient small estates not hitting their targeted 23-25 tonnes per ha per year in terms of yields,” added Chandran.

Meanwhile, most planters’ borrowings are in US dollars. Normally banks are more “friendly” if the price of CPO is trading between US$650-US$670 per tonne.

“However, if CPO fell below US$600 per tonne, then small planters will find it difficult to service their loans and some even may opt to sell their estates below the market valuation.”

This is especially so with the current price of CPO trading at RM2,531 (US$575.6) per tonne, said Chandran, adding that many small plantation companies in Sabah and Sarawak could be takeover targets of the big boys of the industry this year.

Back then in 2013-2014, the acquisition price for Sabah and Sarawak plantation land inclusive of palm oil mills ranged between RM75,000 and RM80,000 per ha.

“Now, these prices are no longer valid. I believe the plantation landbank price in Sabah has come down to about RM60,000-RM65,000 per ha,” Chandran pointed out.

In Peninsular Malaysia, the value for similar-sized oil palm estates is around 20% to 40% higher, depending on location.

As for Indonesia, over five million ha of oil palm land is said to be held by foreign investors, and they have poured over RM100bil in investments into the sector.

According to market analysts, Malaysian planters with more than 50% of planted land bank exposure to Indonesia include IJM Plantations Bhd (52%), KLK (53.2%), and Genting Plantations Bhd (72%), followed by Sime Darby Bhd at about 38%, Felda Global Ventures Holdings Bhd at 5.9% and IOI Corp Bhd at 7.2%.