29/08/2005 (The Star) - TRADEWINDS Corp Bhd plans to venture downstream inthe palm oil business after it has completed the merger of subsidiaryTradewinds (M) Bhd and Johore Tenggara Oil Palm Bhd (JTOP).

"Our focus for the next 12 months will be to ensure the merger goessmoothly and everything is done well," group chief executive Mohd RedzaShah Abdul Wahid told StarBiz.

He added that the company was open to acquiring more land for oil palmplantations and would eventually venture into downstream activities.

The prospects of manufacturing products from oil palm seem bright forTradewind’s plantation operations, as increasing customer awareness hasspurred food manufacturers in the US and Europe to search for healthieralternatives to hydrogenated soft oil such as soy oil.

Our focus for the next 12 months will be to ensure the merger goessmoothly and everything is done well, says Mohd Redza Shah Abdul Wahid

However, a larger demand could come from the palm oil-based bio-fuelindustry.

Malaysian Palm Oil Association chairman Datuk Sabri Ahmad had earlier said500,000 tonnes of palm oil would be needed yearly for bio-fuel asbio-diesel was seen as the solution to the escalating price of fossilfuel.

He added that the country could become a main producer of bio-fuel such asGermany, France and Italy.

"The Government should consider providing incentives such as corporate taxrebates for palm oil producers to venture into the production ofbio-fuel," he said.

Tradewinds controls 52% of Tradewinds (M) Bhd, which will proceed with itsacquisition of 70% of JTOP, once shareholder approval is obtained at itsEGM next month.

"This will make it one of the biggest plantation companies in Malaysiawith a total land size of 141,400ha," said a research house. Tradewindscurrently owns a total of 118,802ha in Malaysia and Indonesia.

According to the research house, the company's milling operations canproduce up to 960,000 million tonnes of palm oil per annum, but wasoperating at 82% capacity in 2004 and 75% in 2003.

It added that Tradewinds was looking to improve fresh fruit bunch (FFB)yields as the current FFB yield was below average of 20 million tonnes perhectare in the peninsula, and up to 24 million tonnes per hectare in Sabahand Sarawak.

Last year, Tradewinds (M)’s FFB yield was 16.3 million tonnes per hectare.

"Growing mature areas and investments in fertilisers will improve FFB’syields, and this will offset weaker average crude palm oil price of aboutRM1,500 per tonne, compared with RM1,603 per tonne achieved last year,"said the research house.

Tradewinds’ biggest operation is its sugar refining business thatcontributed between RM60mil and RM70mil to pre-tax profit in the last twoyears. The company has successfully mitigated the rising costs of rawsugar material with hedging practices and higher export sales toAustralia, Indonesia and New Zealand. It is also proposing to acquiresugar refiner Gula Padang Terap Sdn Bhd (GPT) for RM188mil.

"The acquisition of GPT will increase its share in the sugar refiningbusiness to 40% from the current 25%, as well as boost production capacityby 800 million tonnes," said an analyst.

Another of Tradewinds' core businesses is its property division that ownscommercial buildings, hotels and resorts around the country, as well asland in Johor, which was acquired last February.

According to the research house, these pieces of land situated in Pulai,Tebrau and Sedili are expected to be gradually sold off over a period offive and seven years to property developers at a cost slightly higher thanthe purchase price to improve the company’s cash flow of up to RM84.4milrevenue per annum.

It is reported that Tradewinds may set up a real estate investment trustfor its commercial properties, which include Menara Tun Razak and KompleksAntarabangsa, within the next two years.

Tradewinds’ financial position and gearing situation have improvedtremendously since the takeover of a 32% stake by Syed Mokhtar Albukharyvia Restu Jernih back in 2003.

Since then, the company has managed to dispose of close to RM900mil worthof assets, including a 51% stake in Menara Exxon-Mobil for RM130.5mil,plantation assets amounting to RM73.2mil, a RM550mil debt equity swap fora 26% ownership of its hotel division, a 24.6% interest in United MalayanLand Bhd for RM131.5mil, and a 45% stake in United Malayan Flour Mills Bhdfor RM25mil.

Tradewinds has said that it plans to further reduce its debts in thefuture by selling non-core assets such as its Hanoi hotel valued atRM304mil, a 35% stake in Pernas Otis Elevator Co Sdn Bhd with anapproximate value of RM37mil, as well as Kuching Hilton and Hilton BatangAi Resort.

"If such disposals were to occur, Tradewinds’ net gearing is set toimprove to 1.06 times in financial year 2005, 1.05 times in 2006 and 0.97time in 2007," said the analyst.

The company had a net gearing of 1.16 times last year.

In the first quarter ended March 31, the company incurred a loss ofRM8.9mil. The company attributed this loss to "lower than average sellingprices of palm oil products, higher costs of production of themanufacturing and trading divisions, lower hotel occupancy rates andhigher amortisation of goodwill on acquisitions."