Bumper harvest for Sarawak Oil Palms

Sarawak Oil Palms Bhd (SOPB) is poised to see at least 10 per cent growth in its fresh fruit bunch harvest to 700,000 tonnes by the end of the year, as more young trees mature.

Headquartered in Miri, the group has planted close to 60,000ha with oil palms in Sarawak. In a recent interview in Kuala Lumpur, SOPB group financial controller Eric Kiu Kwong Seng spoke of the company's favourable tree profile.

"Last year, about 17 per cent of our planted area was of prime fruit bearing ages. As more young trees mature, we expect very good harvest prospects," he told Business Times.

"By the end of this year, about a fifth of our total planted area will be of matured ages and bearing more fruit bunches," he said.

Kiu is optimistic of good crop output because for the past few years the group had been consistent in its fertiliser use. "We never stinge on fertiliser despite the 10 per cent rise in cost. For this year, we managed to lock in 60 per cent of our fertiliser needs late last year," he added.

In 2010, SOPB's average fresh fruit bunch yield was 20.4 tonnes/ha. About two thirds of its oil palms are planted on peat soil. Kiu attributed the oil palms' high productivity to vigilant water management.

Also, SOPB's aggressive plantings as early as 2007 have resulted in 45 per cent of its planted area consisting of young oil palms and primed to bear more fruit bunches. This means big earnings growth potential in the next five years. So far, SOPB has planted 80 per cent of its 72,653ha landbank.

For the next two years, SOPB is spending some RM600 million on new plantings, construction of Sabaju and Tinbarap mills and a 450,000 tonne-a-year refinery.

SOPB was set up in 1968 via a joint venture between Commonwealth Development Corp (CDC) and the Sarawak state government. In 1995, conglomerate Shin Yang Group bought CDC's entire stake and is now the largest shareholder with 36.5 per cent while state-owned Pelita Holdings Sdn Bhd holds 28.9 per cent.

SOPB has a solid balance sheet. It had a net gearing of 50 per cent in 2003 but is now in a net cash position of RM52 million or 12 sen a share.

Although it does not have a dividend policy, the group has been paying out 3 sen a share.

Earlier this month, research house INet Research placed a "buy" call on SOPB's shares after having noted the group's strong balance sheet. It highlighted that SOPB's price earnings valuation of 8.2 times for 2011 is below the 15 times in plantation sector.

INet Research reckons that SOPB's share price can rise as high as RM4.30 based on a price-to-earnings ratio of 10 times of its profit forecast for this year.

Separately, OSK Research said since three quarters of SOPB's oil palms are younger than 10 years old, its fresh fruit bunches output could double in five years. OSK placed a "buy" call on SOPB's shares and maintained its valuation of the shares rising to as high as RM5.22. This forecast is based on a multiple of 12 times its forecast results.

The shares traded unchanged on Bursa Malaysia last Friday to close at RM3.46.

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