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Date
 10/02/2020
News Provider
 Nur Aisha Abd. Wahab
News Source
 The Star Online
Headline
 United Malacca to plant cash crops in Indonesia

The Star Online (10/02/2020) - PETALING JAYA: After two years of preparation, UNITED MALACCA BHD (UMB) will begin planting stevia in Sulawesi this year, marking the start of its first large-scale commercial crops venture into Indonesia.

According to its chief executive officer Peter Benjamin, the planter will initially grow stevia – a popular substitute to sugar – on a 100ha site.


Of UMB’s total 30,000ha to 35,000ha plantable area in Sulawesi, about 5,000ha has been allocated for stevia while an estimated 10,000ha for coconut and 3,000ha for cocoa plantation in phase one.


He told StarBiz that “under the group’s commercial crop venture, we plan to resume planting in financial year 2020/2021 (FY20/21) and complete planting in Sulawesi within the next 10 to 15 years.”


Plantation analysts estimates that UMB will need to fork out between RM120mil and RM180mil for its cash crop venture into Indonesia.Early last year, the plantation group had disposed of four estates in Negri Sembilan and Melaka for RM175.14mil to poultry-based HUAT LAI RESOURCES BHDhttps://cdn.thestar.com.my/Themes/img/chart.png.


The company had said that the bulk of the proceeds will be used for UMB’s venture into Indonesia and to reduce its borrowings.


Analysts pointed out that UMB is betting big on its venture to plant cash crops such as stevia, coconut, coffee and cocoa in Indonesia, which has the potential to be big contributors to the pure oil palm planter’s profit in the foreseeable future.For example, coconut oil is currently fetching a premium in the world market given its new status as “superfood”, trading at about US$1,059 per tonne compared with CPO spot price at about US$869 per tonne.


As for cocoa, coffee and stevia, which are well -known staple foods, there will be continued demand for such crops going forward in line with the world’s population growth.


Peter, meanwhile, expects the stevia crop to start contributing to the group’s revenue by the financial year ending April 30,2021.


He said: “Once our stevia planting starts to increase both in terms of yield and hectarage, UMB will also need to set up extraction plants to process the dry stevia leaves into powdered form, which is the raw material for further processing into downstream products.”


The cost for the proposed plant is estimated at US$5mil (RM20.7mil) to US$7mil (RM29mil).


UMB is also poised to produce some three tonnes of stevia per ha per year, making it among the biggest growers in the region in the future, said Peter.


Despite the maiden planting being stevia in Sulawesi, he said the main cash crops for UMB in Indonesia would be coconut and cocoa.


“Yes, we are definitely going big on coconut and cocoa planting.


“But, the speed to planting these crops will depend on the volume of our planting materials.


“Towards this, we have commenced land preparation, infrastructure work, sourced our planting materials and nurseries will be set up immediately, perhaps, undertake tissue culture to further boost the production of our seedlings, ” explained Peter.


On the other hand, UMB which is a pure oil palm plantation player with over 50 years of experience in the upstream business will continue to keep it as its mainstay.


Of its total land bank of about 48,695ha, 24,585ha (50.5%) is located in central Kalimantan and 24,110ha (49.5%) in Malaysia. In June 2019, the new 45-tonne palm oil mill in Kalimantan was commissioned.


Peter said: “The CPO price has rallied in the last quarter of 2019 and is trading at RM2,800-RM2,900 per tonne compared with the weak prices over the past two to three years.


“UMB is expecting good results for our current financial year ending April 30,2020, ” he added.


Meanwhile, Kenanga Research in its recent report said UMB’s performance is improving but “there is still a long road to recovery”.


“We recently came away from a meeting with UMB’s management neutral on its FY20 prospects.”


The research unit said the positive impact on earnings from sturdy FY20 fresh fruit bunches (FFB) growth of 15% versus Kenanga’s 11% forecast as well as higher CPO prices (quarter-to-date 3Q20: up 29%) should be partially mitigated by more aggressive manuring target by 67% in the second half of FY20.


“The UMB management is expecting overall FY20 FFB growth of 15%, driven by Indonesia (20%-25% growth) due to improving yields from its plantation’s young age profile.


This translates into FY20 estimates of FFB production of 406,000 tonnes (versus Kenanga’s 392,000 tonnes), up 11% year-on-year.”


Kenanga Research is keeping its FY20 FFB forecast unchanged for now, in anticipation of a slower pick-up in the second half of FY20.


The UMB management is also expecting CPO price to average at RM2,800 per tonne in 2020, which is in line with Kenanga Research’s calendar year 2020 forecast of RM2,700 per tonne.


This is given that production should be affected by the dry weather, lower fertiliser application and lower replanting activities during the period of depressed CPO price environment, while demand is seen to remain robust with the implementation of the B30 biodiesel mandate in Indonesia.


While the outlook for CPO price remains encouraging, Kenanga Research expects the group’s realised CPO prices could be slightly lower given Indonesia’s US$50 per tonne export levy.The research unit added that “cost will also remain challenging in FY20. We understand that management intends to apply RM1,400 per ha of fertiliser for FY20 (1H20: about RM460 per ha).


Hence, Kenanga Research is maintaining a “market perform” call on UMB with an unchanged target price of RM5.55.


Shares of UMB closed unchanged at RM5.20 on Friday.


Read more at https://www.thestar.com.my/business/business-news/2020/02/10/united-malacca-to-plant-cash-crops-in-indonesia



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