MKH - plantation start going to contribute

Its move into the oil palm industry four years ago (2010) is beginning to pay off as the yield its 15000ha of planted area in Kalimantan has started to contribute to the group’s profile.

The group’s property development business continued to perform well, but it was its plantation division that stole the limelight for its 9MFY2013 financial results.

It will strive to achieve an even contribution between its two core businesses of property development and oil palm plantations.

However, its financial results are still heavily dependent on the property development and investment divisions.

Since its oil palm business is still in its infancy, most of its palm trees are inmature, having been planted less than five years. It now claims to have planted 15000ha.

It was reported that 77% of the planted trees were in mature at the time. But it is likely that more of the trees have started fruiting now.

Its oil palm venture, however pushed up its debt because it had borrow heavily to open up its plantations. Total borrowings had grown to rm500 million in FY2012. Its net debt to equity ratio also rose to 50.51%.

The rise in its debt corresponded with that its capex, which reached rm94 million in FY2012.

The maiden contribution from the oil palm business offers a glimpse of the earnings MKH could derive from it in the future, provided demand for the commodity continues to be stable in the short term and positive in the long term.

The plantation unit will be a significant catalyst for MKH. Since venturing into the business in 2008, it has fully planted the 15000ha of its concession land.

In the oil palm industry, the trees fruit optimally between their 7th and 15th year, Since MKH’s trees are mostly less than five years old, their yield would be quite low. However, as the trees reach maturity, FFB production and yields will increase and contribute positively to the business. MKH also processes its FFB into CPO locally in Indonesia.