03/05/2011 (The Star) - IJM Plantations Bhd expects its Indonesian venture to significantly contribute to the company's production and earnings by end-2014 onwards.

The mid-size plantation company currently owns (on leasehold) more than 40,000 ha in Indonesia, which is bigger than its total landbank of 30,000ha in Sabah.

Chief executive officer and managing director Joseph Tek Choon Yee said that to date, 12,500 ha had been planted and it would take two more years before it could be harvested.

“We currently have about four parcels of land there three in Kalimantan and one in Sumatra. And our first mill in Indonesia, Indonesia Plantation Synergy, slated to be operational by year-end will be located in the third parcel,” he told StarBiz during a stakeholders engagement visit to its plantation areas in Sandakan and Sugut recently.

Joseph Tek Choon Yee showing samples of oil palm fruits

Tek said 10,250ha of flat land in Indonesia had been cleared and was just waiting for the seedlings to be ready.

“It is quite dry there, but due to its proximity to the river, irrigation is easy,” he said.

For its operation in Sabah that houses all of its plantation in Malaysia, Tek said the company was expected to post stronger performance for the financial year ended March 31, 2011 based on crude palm oil (CPO) prices over the specific period.

“The performance of any oil palm plantation companies depends on CPO prices and the average price for CPO for FY11 has better than FY10,” he said.

In FY 2010, the average CPO price stood at RM2,246 per tonne while net profit was up by 55% to RM123.2mil and revenue rose by 21% RM491.6mil against FY09.

Tek expects a strong performance in FY11 despite the unfavourable weather in the form heavy downpour since December.

IJM Plantations’ nursery uses an innovative watering system.

“The La Lina induced rains can potentially affect productivity up to 15%,” he said.

IJM Plantations' FY11 result is expected to be announced later this month.

On the direction of the company going forward, Tek said that after 26 years, the company was ready for the next cycle of replanting.

“We have started replanting in Sabah since 2008. We are basically an upstream player and don't plan to go into the refinery or oleo chemicals business.

“Our main focus now is on our plantations in Malaysia,” he said, adding that replanting cost per ha cost about RM12,000.

IJM Plantations' estates in Sabah are mainly located in Sandakan and Sugut which respectively contributed about one-third and two-thirds of its production.

On the problem of labour shortage, Tek said: “The industry has to come together to tackle this issue, otherwise we going to have a serious problem in future.

“We have even brought some of our Indonesian personnel to visit our plantation in Sabah so that they will have a clearer idea of how IJM operates and take care of the welfare of its workers.

“For our operations in Sabah, we are trying our best to provide a small township in the estates for the workers,” he said, adding that the majority of its workers were Indonesians. It is apparent from the Sabah visit that IJM Plantations has provided facilities such as a community hall, schools, sports facilities, and convenient stores for the estate workers.

Another problem is the high cost of fertilisers which make up about 50% of total operational costs.

Tek said: “I believe it will go up even more in line with crude oil prices. However, we have already locked in on orders for 80% our fertilisers for the current financial year,” he said.

On research and development (R&D), Tek said IJM Plantations was committed to come out with better yield crop and integrated pest management.

“We are also doing R&D to increase machinery efficiency in our mills. We also make sure that our planting areas do not disturb the surrounding natural habitat. For example, in one of our parcels in Indonesia, we make sure there's zero discharge from our plantation to protect the nearby coral-rich areas,” he said.