9/5/06 (The Star)  -  Kumpulan Guthrie Bhd might be on a steep earnings recovery path as a larger number of its oil palm trees mature and yields from its plantations start to jump.

The company's debts are also projected to be slashed as profits improve and the disposal of the Guthrie Corridor Expressway (GCE) completed.

Kumpulan Guthrie's share price, which has been trading between a band of RM2 and RM3 in the past few years following the company's acquisition of the Minamas estates in Indonesia in its 2001 financial year, closed at a 52-week high of RM2.80 yesterday.

The estates, which have been a drag on the company since their acquisition, are however, showing signs of turning around and are poised to be a big contributor to the group as Kumpulan Guthrie's fresh fruit bunch production hit a record in March, TA Securities said in a research note.

The yield from Kumpulan Guthrie's plantations in Malaysia is expected to rebound sharply to 20 tonnes per hectare for the current financial year – as projected by the company during the release of its key performance indicators – compared with 17.3 tonnes per hectare in year 2005.

This would be driven by higher yields from oil palm trees that had matured over the past two years, as a result of replanting exercises undertaken a few years ago, the research house said.

TA Securities said the turnaround was due to a revamp undertaken by the current management, which had established a special plantation committee responsible for monitoring the group's Indonesian estates.

Management had also focused on improving the number of trees planted on each hectare to maximise yields and the road infrastructure within the estates, and increasing the number of mills at the Indonesian estates.

TA Securities said that results at the Minamas estates were starting to show as FFB yields had risen to 15.5 tonnes per ha in 2005 from a low of 6.5 tonnes when the plantations were acquired in 2001. Yields are expected to reach 17.5 tonnes per ha this financial year.

The group's CPO yield in 2005 stood at 3.6 tonnes per ha, which was more than double the yield in 2001, and close to what the more efficient Malaysian average of 3.8 tonnes per ha.

TA Securities expects Minamas, as a result of rising FFB yield, to record a CPO yield of 4.2 tonnes per ha in the group's current financial year.

Kumpulan Guthrie has announced that it intends to achieve a return on equity of 8% for its 2006 financial year, which translates into a net profit of RM228.7mil. 

TA is projecting a net profit of RM204.5mil this year, but that is based on the rupiah at last year's level of 2,601 rupiah to RM1.

The spot rate as of yesterday was 2,430 rupiah per ringgit.

TA Securities also expects Kumpulan Guthrie's cash flow position to improve due to increased profits, lower spending on the GCE and lower replanting expenditure at the Minamas estates.

With the extra cash, Kumpulan Guthrie's net debt is expected to fall progressively and could fall even further once it sells off the GCE.