Tuesday January 25, 2005 - THE proposed purchase of an oil palm plantationin Indonesia by motor vehicle parts maker Delloyd Ventures Bhd wasadversely received by investors, its share price closing 22 sen lower atRM2.46 when the stock was re-quoted yesterday.
It appears the acquisition has been misunderstood. The group is acquiringa 60% stake in a plantation company for RM42.9mil cash.
Delloyd can comfortably afford that, as the group is cash rich, with aboutRM52mil cash at the end of September last year. That cash would have beenearning a net return of perhaps 2%, with no prospects for growth. Theacquisition will put the bulk of that cash to better use.
The plantation company, PT Rebinmas Jaya, owns 34,450 acres of oil palmplantations on Pulau Belitung, off Sumatra. About half the acreage hasmature palms and the rest to be planted.
Delloyd's share of that acreage, through Rebinmas, can add about RM16mil ayear in pre-tax profit to the former, assuming a profit of RM100 an acre amonth.
The location of the estates is favourable, Delloyd managing director DatukTee Boon Kee told StarBiz yesterday.
There are three other companies with plantations on that island, includingKuala Lumpur Kepong Bhd. The palm oil mills on the island are all owned bythese companies. That means theft of fresh fruit bunches will be minimalas there are no independent mills to sell pilfered fruits to.
Datuk Tee Boon KeeNot that investors should worry about Delloyd's ability to containpilferage. Although its core business is motor vehicle parts, it hadbought an oil palm estate in Batang Berjuntai, Selangor, some years back.Even though that estate has just 3,500 acres and was bought for itspotential for property development, it made an operating profit ofRM6.7mil in 2003.
Delloyd has managed that well and from that experience, it decided todeploy some of its surplus cash to expand its exposure to oil palm.
"Over the long term, this plantation (in Indonesia) will be very good. Itwill help stabilise our earnings; and also help us to maintain thedividend," Tee said.
The plantation can be profitable even if crude palm oil (CPO) prices dropto RM1,000 a tonne, he added. CPO prices are currently around RM1,300.
As for planting expenditure for the rest of the estate, he said a portionof the earnings from the planted acreage could be ploughed back for that.
A company called Taipan Hectares Sdn Bhd will pay proportionately for a35% stake in Rebinmas. Tee said Taipan was owned by his family. Thatserves to demonstrate his confidence that Rebinmas is a good investment.
Like the location, the terms of ownership are also favourable. There is norequirement, for instance, for local Indonesian ownership. Rebinmas willcontinue to be 5% owned by an Indonesian company, an existingshareholder.
Rebinmas' estates are owned for a period of 30 years renewable for another30 plus 25 years, like leasehold land in Malaysia.
While Delloyd is using its surplus cash for some diversification, it isstill growing it’s auto parts business. It will be investing, forinstance, in new equipment to produce auto parts for Perodua's newmodels.
In addition, its auto parts plant in Indonesia, which was set up lastyear, should be profitable starting this year. That supplies auto parts toToyota Indonesia and efforts are being made to sell to other carassemblers there.
Delloyd, in its corporate history, has yet to throw up any unpleasantearnings surprises. The Batang Berjuntai estate has been profitable, andits motor vehicle distribution company " Atoz Motor Marketing Sdn Bhd "that was acquired early last year made an operating profit of RM1.6mil inthe first nine months last year.
The Delloyd group is financially conservative, with no short- or long-termdebts last year.