20/06/2014 (Jakarta Post) - Publicly listed agribusiness giant PT Sampoerna Agro is optimistic it can achieve its production target this year, in spite of the predicted El Niño that could roil agriculture production.

The company, which is part of the Sampoerna Strategic Group conglomerate, aimed to produce 315,000 tons of crude palm oil (CPO) by the end of this year, a 16 percent increase from last year’s 270,000 tons output, the firm’s head of investor relations, Michael Kesume, said on Wednesday.

Australia is on El Niño alert, which could bring drought to the Asia-Pacific region and heavier rains to South America, as the country’s Bureau of Meteorology said recently that there was a 70 percent chance of the event developing this year by August or September.

Goldman Sachs Group Inc. has said that any disruptions caused by the El Niño will primarily affect palm oil, cocoa and coffee — all of which are major production and export commodities in Indonesia.

“The effects of an El Niño will most likely be seen next year. We have calculated that CPO production this year will rise in line with the contribution of the Ketapang palm oil plant,” Michael said after a general shareholders’ meeting.

However, Sampoerna Agro’s first quarter production declined 11 percent to 68,131 tons from 76,706 tons in the same period last year.

But the company’s optimism about this year’s production was based on expectations that its CPO production factory in Ketapang, West Kalimantan, would be operational by the end of July at the earliest, according to Michael.

“Right now, construction [on the plant] is proceeding better than we expected. Originally, we had a later projection date on when it would be completed, but now we are looking at a July finish,” he added.

The company has invested Rp 100 billion (US$8.33 million) in the construction of the Ketapang factory, and once it is completed, it will be able to process around 30 tons of palm oil an hour. Michael also confirmed that Sampoerna Agro may build another palm oil processing factory next year in Kalimantan.

Sampoerna Agro has estimated overall capital expenditure of between Rp 500 billion and Rp 1 trillion this year — 70 to 80 percent of which will be used to develop and improve its CPO and rubber factories and plantation yields. The spending will primarily be funded by the company’s internal funds and from bank loans.

Notably, the company aims to expand the capacity of its rubber plantations in Kalimantan. Rubber makes up less than 1 percent of Sampoerna Agro’s total earnings, as it currently only produces 200 hectares worth every year. The company acquired 2,500 hectares of land for rubber plantations in 2012, but Michael explained that it would be seven years before production began.

The company plans to develop a total 100,000 hectares of rubber plantations, with 2,000 to 3,000 hectares being added this year.

Sampoerna Agro owns a total 120,225 hectares for palm oil plantation in Indonesia, and 2,810 hectares of rubber plantations, mostly located in Sumatra and Kalimantan. The company said it may also consider expanding into biofuel production in the future.

In the first quarter of 2014, Sampoerna Agro recorded net profits of Rp 55.4 billion, up by 141 percent from the Rp 22.9 billion net profits earned in 2013. The firm’s first-quarters profits were aided by the high price of palm oil, which currently stands at around Rp 9,000 per kilogram compared with Rp 6,100 at the beginning of last year.

Shares in Sampoerna Agro, which are traded on the Indonesia Stock Exchange (IDX) under the code SGRO, closed at Rp 2,310 on Wednesday, up 0.43 percent from the day before. The shares have gained 15.5 percent so far this year, in line with the broader stock index’s 14.36 percent increase