Archive for June 2011

WTK hopeful amid higher plywood prices

KUALA LUMPUR: WTK Holdings Bhd is hopeful of raking in higher profit this year as it benefits from buoyant plywood prices.

In the first quarter ended March 2011, WTK swung back to profitability from RM1.95 million loss recorded in the corresponding period a year ago. It netted a RM12.66 million profit on the back of RM156.77 million revenue.

"Plywood prices have started to climb. It is now averaging at around RM600 per cubic metre, much higher than RM450 per cubic metre a year ago," said chairman Datuk Wong Kie Yik.

At the start of the year, WTK has established 5,500ha of forest plantation and planted 7,000ha with oil palms. "This year, we've set aside RM20 million to expand our forest plantation by another 2,000ha. As for our oil palm estates, we're planting up another 3,000ha," he told reporters after the company's shareholders meeting here yesterday.

"WTK is still relatively young in oil palm planting. We expect the palm oil business to only contribute significantly from 2014 onwards," he added.

Japan, which imports 60 per cent of its tropical hardwood plywood requirements from Malaysia, remains the biggest market for WTK's plywood. "We export 90 per cent of our plywood to Japan and the remainder goes to Taiwan," he said.

Asked if the current plywood price spike is brought by increased orders from Japan's reconstruction efforts following the triple disaster of an earthquake, tsunami and prolonged nuclear crisis, Wong said: "Yes, the orders are starting to trickle in."

Temporary homes are now being built for more than 100,000 families in Japan. The earthquake and tsunami have destroyed and damaged about 220,000 homes there. Last month, the Japanese government approved a 4.0-trillion yen (RM151 billion) first extra budget to meet immediate disaster relief costs. Money is being channelled to the clean-up and the construction of more than 100,000 temporary houses.

Japan's Economics Minister Kaoru Yosano reportedly said his government may need to spend between 10 trillion and 15 trillion yen (RM378 billion and RM566 billion) for reconstruction from the devastating earthquake that hit the country's northeast in March.

"We believe these development would further strengthen Japan's housing starts again and the demand for our timber products," said Wong, adding that Japan's rebuilding efforts may lasts for five years. Apart from plywood sales, WTK also exports logs to India, China, Japan and Southeast Asian countries.

On challenges that lie ahead of WTK, he said timber production cost has gone up since the beginning of 2011. "It is in line with the world's oil price spike. Royalty rates for logs, too, have gone up," he added.

Buoyant CPO prices keeps Boustead upbeat

KUALA LUMPUR: Boustead Holdings Bhd expects to do very well this year, as crude palm oil prices continue to trade at buoyant levels of more than RM3,000 per tonne.

Out of its six core businesses, plantation is the biggest earnings contributor, followed by shipbuilding and property development.

Although palm oil prices have started to slide in the last three months, the third month benchmark palm oil futures contract on the Malaysia Derivatives Exchange averaged RM3,300 per tonne in the first half of the year. Last Friday, the contract closed RM19 lower at RM3,117 per tonne.

"We have substantial investments in plantations. Currently, palm oil is still trading at strong levels," said Boustead Holdings deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin.

In the first quarter ended March 2011, Boustead Holdings' plantation division contributed RM99 million or 73.6 per cent of its pre-tax group profits.

"Judging from the first quarter results, we should be posting better results for the group as well as the REIT," said Lodin, who is also chairman of Boustead REIT Managers Sdn Bhd.

"There is also the injection of two estates and a mill into the REIT that will see to improved performance," he told Business Times at the sidelines of GLC Open Day held here over the weekend. With the RM189.2 million acquisition and leaseback of the Sutera Estate, Taiping Rubber Plantation and the Trong Oil Mill, Al-Hadharah Boustead REIT's total asset value has surpassed RM1 billion. Total asset size has also expanded to some 20,000ha from 16,391ha previously.

Boustead Holdings, the parent of Al-Hadharah Boustead REIT, has an agriculture landbank of 97,648ha. To-date, 76 per cent of the landbank had already been planted with oil palms. While 20,000ha of Boustead's 74,354ha planted area had been injected into the Al-Hadharah Boustead REIT, Lodin emphasised the REIT is actually open to inclusion of assets from other estate owners.

"It is not restricted to our estates. If there are any other estates which are profitable and interested to be part of the REIT, we're open for discussion," he said.

Prime Minister Datuk Seri Najib Razak, who officiated at the launch of the three-day GLC Open Day lauded close collaborations and joint ventures undertaken between government-linked companies and the private sector.

Boustead is one such company.

For the past 25 years, it had partnered Kuala Lumpur Kepong Bhd (KLK) to produce high yielding hybrid oil palm seeds and bred smaller-sized oil palm trees that allow for high density planting. Lodin said the 50:50 joint venture company Applied Agricultural Resources Sdn Bhd, is a significant contributor to the government's oil palm national key economic area that aims to replant unproductive oil palms with high yielding ones, throughout the country.

"Our synergistic partnership with KLK allowed us to become the world's biggest in planted area of clonal tissue culture. This translates to more consistent results of high yielding oil palms," he said.

Lodin then highlighted Boustead's collaboration with the University of Nottingham, for the last decade, that resulted in a Malaysian campus at Semenyih, Selangor. "Our 66 per cent stake in the Nottingham University campus is our contribution in value adding to Malaysia's tertiary education," he said.

Palm oil labelling law against Aussie gov policy

KUALA LUMPUR: Malaysia can still stop Australia from passing a law that will discriminate palm oil, said an Australia-based world trade expert, who feels the move goes against Australian policy.

"If the Malaysian government gave the Australian government incentive enough to resist the measure and explained to the state governments of Australia why the proposal was misinformed, the Greens campaign could be defeated," says Alan Oxley who is a former chairman of the General Agreement on Tariffs and Trade (Gatt).

Gatt was the predecessor to the World Trade Organisation.

The Australian Senate passed the Food Standards Amendment (Truth in Labelling - Palm Oil) Bill 2010 last week. If made law, products with palm oil must be labelled to say it has the commodity as an ingredient. Malaysia views this as discriminatory as competing vegetable oils do not have to do the same.

To become law, the Bill has to be adopted in the House of Representatives where the government rules only with the support of four independent lawmakers. The Greens Party, which supports and has strong political influence on the minority government, wants the Bill passed to enable products containing palm oil to be singled out for attack.

Oxley, in an email interview, said the proposal is contrary to standing Australian policy. "Until now, the position of Australian federal and state governments is that compulsory food labelling should primarily serve to protect human health and safety, not purpported environmental campaigns. This is also the position of Australian manufacturers of consumer goods."

He feels that it has been an issue that has been "manufactured" by the Green groups, which have been indoctrinating schoolchildren visiting zoos that oil palm planting in the tropics destroys forests and decimates the orangutans species.

"Malaysia should aim to defeat this measure in Australia for the same reason the Greens want it to succeed. Defeating it will send a signal to other markets that the anti-palm oil campaign is not credible," Oxley said.

Passing of palm oil labelling Bill a grave concern

This is written by my colleague Rupa Damodaran.

Kuala Lumpur: Malaysia is deeply disappointed that Australia is going ahead with its discriminatory law against palm oil, a move that industry experts say could be challenged under the World Trade Organisation (WTO).

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok expressed grave concern on the passing of the Food Standards Amendment (Truth in Labelling - Palm Oil) Bill 2010 by the Australian Senate on Thursday.

"It is with great regret and disappointment that the Australian Senate has not accorded the due attention contributed by the oil palm industry in Malaysia and the sustainable practices adopted," Dompok said in a  statement issued by his ministry yesterday.

If the Bill becomes law, it now needs to be passed by the Lower House of the Australian Parliament, it means food products with palm oil in Australia must be labelled to say it has the commodity as an ingredient.

Malaysia views this as discriminatory as competing vegetable oils are not required to do the same. Independent senator Nick Xenophon moved for the Bill in late 2009.

A week ago, the Malaysian palm oil industry rejoiced when the Community Affairs Legislative Committee of the Australian Senate in Canberra recommended the Bill not be passed, after hearing various submissions including from Malaysia.

It is clearly evident that facts and figures provided to the Senate Community Affairs Legislative Committee have been clearly ignored, said Dompok.

"This industry is currently an important pillar in Malaysia's economy and has contributed substantively towards addressing rural poverty and generating employment in the agricultural sector. In addition, the industry has contributed immensely towards meeting global demand for food products and a source of renewable energy which is environmentally friendly."

Melbourne-based think tank Institute of Public Affairs described it as a "bad law" which will be implemented because of political deals from Australia's hung Parliament arrangement. Its director Tim Wilson said the Australian Parliament has been ignoring WTO rules in its decision for various policies, including the palm oil Bill. "The capacity for it to be challenged in the WTO remains valid," he said.

Dompok said the Australian government should demonstrate its commitment to bilateral relations, including ensuring that legislation is supported by facts and figures. "The Malaysian government is deeply disappointed that the Liberal, National and Greens Parties, and Senator Xenophon have chosen to put politics ahead of the mutually advantageous relationship between Malaysia and Australia that could be further strengthened in the future."

Bilateral trade in 2010 was valued at US$10.63 billion (RM32.31 billion), with exports valued at US$7.46 billion (RM22.67 billion), while imports from Australia were valued at US$3.17 billion (RM9.63 billion).

Australia is Malaysia's eleventh largest trading partner. It is also Malaysia's eighth largest export destination and 12th largest import source.

Wilson also felt that the ongoing bilateral free trade agreement (FTA) talks between Malaysia and Australia are likely to be impacted because of this. "I suspect this Bill will inject bad faith into the negotiations on the Malaysian side and may become a key negotiating sticking point before any FTA can be finalised, and Australian officials will be aware of this reality."

Wilson also does not think that the Australian or New Zealand consumers would care whether palm oil is an ingredient in their food. "What they do care about is price. This Bill is designed to encourage consumer boycotts based on political attacks against the palm oil industry."

This was published in Food Magazine.

Palm oil bill could cost food industry jobs, warns AFGC .

A new bill that will require palm oil to be labelled in all Australian foods is one step closer to becoming law after it passed the Senate yesterday.

The bill, introduced by Independent Senator Nick Xenophon and the Greens party, secured the support of the Australian Opposition party this week.

The Australian Food and Grocery Council (AFGC) have criticised the bill, saying it would have significant impacts on Australia’s food manufacturers as well as compromise the country’s food labelling system. AFGC Chief Executive Kate Carnell said called the palm oil bill a “deal” between the Opposition and Senator Xenophon.

“Without any consultation with industry or consumers, the Opposition did a political ‘trade-off’ on this legislation, which will be a significant cost for an industry already under pressure,” Carnell said.

According to the AFGC, the cost of changing a single label will be between AU$10,000 to AU$19,000 per product. “This is at odds with the Opposition’s aggressive stance on a carbon tax, saying that any new cost on Australian manufacturing at this time would cost jobs and send companies offshore,” Carnell said.

“Food and grocery manufacturers – employing 288,000 Australians including half in rural and regional areas – are already under intense pressure from a ‘perfect storm’ of rising input costs across the supply chain, such as energy, wages and water, higher transport costs, record high global commodity prices and supermarkets forcing down retail prices which is seriously impacting margins.

“It now seems that when it suits them, the Opposition is happy is to do backroom political deals that will have a similar effect on industry as a carbon tax – increase costs and put more pressure on jobs.”

The AFGC is pushing Federal MPs to carry out further consultation with the food industry on the proposed palm oil labelling legislation.

Gov urged to tweak foreign labour policy

GEORGE TOWN: Plantation industry groups are urging the government not to freeze the intake of foreign workers and also to directly handle the amnesty programme for an estimated two million illegal immigrants.

The government plans to outsource the amnesty programme to third parties, which some claim will leave the room open for abuse.

Earlier this month, Deputy Home Minister Datuk Lee Chee Leong reportedly said the objective of the amnesty programme is to collate data such as the actual number of the illegal immigrants and the sectors they are involved in. It also gives the opportunity to the immigrants to return to their country without any legal action taken against them under the stipulated time approved by the Cabinet.

Currently, Malaysia has a population of 28 million, while the unemployment rate is at 3.4 per cent. Lee explained that the government is seeking to curb employers' dependency on low-skilled foreign labours and keeping track of the rising illegal immigrants in the country. The government had also recently announced a biometric security system at the customs to store the records and better identify those entering the country.

In response, Malaysian Estate Owners Association president Boon Weng Siew lauded the spirit of the amnesty programme, but felt the government should not freeze the intake of foreign workers from July 1 to facilitate the amnesty plan.

"This is because the illegal workers being offered amnesty might not be suitable for work in the agriculture sector. They may run back to the city after we take them in. When we recruit, we want workers who already have some background in agriculture and really wants to work in the estate," he said.

"The fees charged under this amnesty programme is also very costly. It can range between RM3,000 and RM5,000 per worker," he added.

Boon was speaking to Business Times at the sidelines of the 9th Incorporated Society of Planters National Seminar held here yesterday. Also present was Malayan Agricultural Producers Association (MAPA) executive director Mohamad Audong.

He highlighted the loopholes arising out of this amnesty programme. "There are certain unscrupulous agents taking advantage of the situation by persuading legal foreign workers to register with them to become illegal, in the hope that they can get higher wages when they change employers.

"Some plantation firms have informed us that they have received flyers encouraging foreign workers, whether legal or illegal, to register with them. If this unhealthy practises are not checked, it will cause further shortage of workers, particularly in the plantation sector," he said.

"We urge the government to review the whole process. The government should not privatise or outsource this massive amnesty programme. The programme should be directly handled by the relevant authorities," he added.

Malaysian Palm Oil Association chief executive officer Datuk Mamat Salleh, who was also at the interview, concurred with MAPA's views. "The outsourcing of the amnesty programme will not solve the problem of worker shortages. Furthermore, it will tempt legal workers to throw away their passports and become illegal in the belief that they could change employers and get paid more," he said.

Palm oil exports to surpass RM65b this year

Penang: Malaysia's palm oil exports this year may break 2008's record of RM65 billion, thanks to higher average palm oil prices and improved global demand.

According to the Malaysian Palm Oil Board (MPOB), the country has achieved RM30.49 billion in palm oil exports in the first five months of this year.

So far, palm oil futures prices are averaging at RM3,300 per tonne, higher than last year's RM2,700 per tonne.

"We're looking at doing better than last year's RM62.8 billion as crude palm oil futures had been and continues to trade above RM3,000 per tonne.

"Fresh fruit bunch harvest has also started to build up," Plantation Minister Tan Sri Bernard Dompok told reporters after officiating at the 9th ISP National Seminar 2011 held here yesterday.

Also present at the press conference was the Incorporated Society of Planters (ISP) chairman Daud Amatzin.

Palm oil prices are set to stay firm as the current limited global supply is due to continue for the rest of 2011 as Indonesia, in its bid to woo more investment in downstream activities, continue to impose high export duties on palm oil shipments.

In 2008, Malaysia produced 17.7 million tonnes but the following year, it dipped to 17.6 million tonnes. In 2010, it plunged to 17 million tonnes. This means Malaysia's palm oil output had declined for two straight years, while Indonesia's production has been rising.

This year, however, Dompok is hopeful of palm oil output rising again to 2009's level of 17.6 million tonnes, as more oil palms mature and bear more fruits. "This is especially so from Sarawak's oil palm estates," he said. His optimism is also underpinned by his ministry jointly fast-tracking approvals for foreign labour with the Home Ministry since the beginning of the year.

For many years, foreign labour shortage has severely affected palm oil output and therefore billions of ringgit in export opportunities.

"I don't see approval of foreign labour a problem anymore if there is still available labour. I know we face competition with Indonesia for skilled workers to harvest the oil palm fresh fruit bunches."

Asked to comment on Parliament's move to enact laws on minimum wage, Dompok said: "In the light of relatively good commodity pricing in the world markets, the government feels that plantation workers deserve better pay. I feel remuneration should be based on productivity."

Seed producers and the Malaysian Palm Oil Association had last year raised the issue of unwarranted imposition of varying degrees of quarantine controls of oil palm planting materials by the departments of agriculture of Sabah, Peninsular Malaysia and Sarawak that have caused much grievance to oil palm seed producers.

Effective January 1 2011, the Sabah state government had even subjected the entry of oil palm planting materials to be certified free of the Philippines' coconut cadang-cadang viroid (CCCVd) disease by Universiti Putra Malaysia's laboratory.

Dompok yesterday said that after a series of meetings with the Department of Agriculture, crop experts and seed producers hosted by MPOB, all parties have agreed to lift the quarantine controls and allow free movement of the planting materials within the country. “Orange-spotting on the oil palm leaves are not new. All parties have now decided that the alarm over claims of CCCVd infecting our oil palms is unnecessary,” he said.

Quarantine controls have been lifted effective June 16 and the replanting of unproductive oil palms under the National Key Economic Area programme should progress according to schedule, he added.

Felda stretches reach

This is written by my colleague Zaidi Ismail.

Kuala Lumpur: Federal Land Development Auhority (Felda), the world's largest oil palm plantation owner and manager, plans to bolster its rubber operations division by expanding to Cambodia and Myanmar.

Government-owned Felda has a total landbank of over 853,313ha nationwide, of which 11 per cent is planted with rubber while the remaining 89 per cent is planted with oil palm and other smaller crops like tapioca, herbs and fruits.

Felda chairman Tan Sri Mohd Isa Abdul Samad said the venture will be carried out by the agency's international commercial arm Felda Global Ventures Holdings Sdn Bhd.

"Looking at the positive outlook and steady increase in the price of rubber, Felda Global is currently looking into land expansion in Cambodia and Myanmar for this commodity.

"We plan to expand about 10,000ha in Cambodia and 30,000ha in Myanmar, through government channels. The discussions are still in the early stages and therefore it is too soon to disclose other details such as investment," Isa told Business Times recently via e-mail.

Isa said Felda has already expanded its plantations of mainly oil palm to Kalimantan, Indonesia, via Trurich Resources Sdn Bhd, which is a 50:50 joint venture with TH Plantations Bhd, the plantation arm of Lembaga Tabung Haji. The venture owns 40,000ha of land in Kalimantan.

"To date, we have already planted 5,000ha, including the plasma areas and our target is to plant 10,000ha this year," he said.

On its plans this year, Isa said Felda Global is focusing this year on improving efficiency at its upstream operations, strengthening overseas operations, creating more value for its current business and creating new growth areas. This includes establishing strategic alliances, land expansion and expanding downstream activities.

"At the same time, we are enhancing our talent management, to ensure that we have the capabilities and capacity to support and complement our expansion plans and take Felda Global to the next level," said Isa, adding that all these efforts point to additional value creation for the settler community.

Further, more efficient operations and higher profits from the businesses will mean that Felda, being the ultimate shareholder of the businesses, will enjoy higher income and therefore have better financial capability to carry out activities for the benefit of the settlers.

"In our efforts to make Felda a global company, we want to integrate all our businesses and are also looking at forming partnerships with suitable parties to ensure the sustainability of our overseas investments. We are also looking at further exploring downstream activities including niche specialty products," said Isa.

Felda has interests in four continents and over 10 countries including the US, Canada, China, Pakistan, Turkey, South Africa and Australia. These are mainly in the production of specialty fats and oils.

On the oil palm sector outlook, Isa said the industry remains strong despite the unpredictable weather phenomenon and the extreme and prolonged rainy season is affecting harvest and palm oil stocks. Demand for palm oil has increased by five per cent in 2010 compared to the previous year which indicates a steady and uptrend demand for palm oil.

"However, industry players need to be more diligent in managing plantations to increase milling efficiency to enhance crude palm oil production and minimise cost. On its oil palm sector, Felda has aborted plans to operate estates in Brazil and is now doing a feasibility study on expansion efforts to West Africa, in countries such as Cameroon and Liberia, Colombia, southern Thailand and various parts of Indonesia, such as Kalimantan, Sumatra and Sulawesi.

Felda Global Ventures has 46 companies comprising wholly-owned subsidiaries, joint-venture companies and associates, with operations in 11 countries. Felda is the world's largest unlisted plantation agency with over 853,313ha of oil palm estates and other crops as at 2007. About half of Felda's land is owned by more than its 110,000 smallholders and their 1.5 million family members.

Felda, set up in July 1956, manages 317 land schemes nationwide and owns 72 oil palm mills and seven refineries churning RM15 billion in revenue a year and produces one-fifth of the world's crude palm oil output.

Victory for consumers and oil palm planters

This is written by my colleague Rupa Damodaran.

KUALA LUMPUR: Palm oil industry players, in lauding the move by the Australian Senate committee to reject a mandatory palm oil labelling bill, say the battle is far from over for the commodity to gain wider market access in international markets.

The decision from Canberra spelt a sweet and significant victory for Malaysia's important commodity against the unjust and misleading anti-palm oil campaigns by environmental non-government organisations (NGOs), they added.

Malaysian Palm Oil Council (MPOC) CEO Tan Sri Yusof Basiron said while the report is seen as a significant repudiation of environmental NGOs' anti-palm oil campaigns, the industry must continue to fight against global efforts to require mandatory labelling.

Efforts must continue to ensure producers retain market access across the globe and consumers, such as those in Australia, continue to benefit from the use of a low-cost vegetable oil.

"We appreciate the committee's professionalism, especially taking into consideration a rigorous scientific evaluation instead of relying on the NGOs (in drafting a bill), which if allowed, can lead to zero trade," he said, when contacted yesterday.

Yusof led a team to present Malaysia's case to the Senate hearing in Canberra on the mandatory labelling of palm oil proposed under the Truth in Labelling - Palm Oil Bill, two months ago. In Malaysia's case, Yusof pointed out, the palm oil industry has been a pillar of economic growth and societal advancement as smallholders account for 39 per cent of palm oil production, while producers enjoy incomes four times above the national poverty level.

The industry is also committed to conservation efforts through initiatives like the Malaysian Palm Oil Wildlife Conservation Fund.

Meanwhile, United Plantations executive director of corporate affairs Datuk Carl Bek-Nielsen welcomed the news, saying it was a decision made based on facts and figures and not emotional exaggeration. "It's a positive development for Malaysia in terms of how palm oil is viewed abroad - which not everything thrown by the NGOs are swallowed hook, line and sinker. We consider it a fair and just decision, not only to the industry, but to smallholders. Had it (the Bill) gone through, it would have put in more wind to the detractors out there to tarnish palm oil," he commented.

Bek-Nielsen, who was also present at the Senate hearing, said some of the comments from the organisations on the planting of oil palm were based on wild exaggeration. He said palm oil producers in Malaysia and Indonesia should not be afraid to take on battles (against the crop) as long as there is injustice taking place and counter them.

Aussie palm oil labelling Bill dropped

This is written by my colleague Rupa Damodaran.

The Community Affairs Legislative Committee of the Australian Senate in Canberra has recommended that the  proposed Truth in Labelling - Palm Oil Bill not be passed.

Senator Claire Moore, who was the chair, said the committee is "not convinced that the issues surrounding the presence of palm oil in food products justify circumventing the existing food regulatory framework. The committee considers that widespread and robust support from consumers, industry and conservation groups will be necessary to justify such intervention."

Independent senator Nick Xenophon moved for the Bill in late 2009.

The committee said divisions were evident between industry bodies, between industry and consumer groups, and in some cases even between different conservation groups.

"The committee is also concerned that, even were there strong support, intervention in this manner would cut across the current FSANZ (Food Standards Australia New Zealand Act) standards development process and state and territory laws," it said on the Australian Parliament website yesterday.

It also noted the progress being made in the adoption of the certified sustainable palm oil labelling under existing voluntary arrangements.

Malaysia presented a strong case against the Bill during the committee hearing in April, represented by Malaysian Palm Oil Council CEO Tan Sri Yusof Basiron, Datuk Carl Bek-Nielsen from United Plantations Bhd, Datu Vasco Sabat Singkang of the Sarawak Land Consolidation and Rehabilitation Authority (Salcra) and Malaysian High Commissioner Datuk Salman Ahmad.

Malaysia said it was based on misleading claims and aimed at harming its largest agricultural export - palm oil.

Australia's current food regulations do not require palm oil to be labelled on food products but the Bill wants to mandate "the labelling of palm oil that encourage the use of certified sustainable palm oil to promote the protection of wildlife habitat". The Bill also proposes to amend the FSANZ Act 1991, with food manufacturers listing palm oil on food labels.

An alternative argument, presented by Malaysia's Ministry of Plantation Industries and Commodities, pointed to the absence of trans fats in palm oil, and asserted, therefore, that palm oil is relatively healthy. A range of evidence about the sustainability of oil palm plantations were presented and the trend towards increased oil palm plantations has been driven by oil palm's high-yield nature and efficiency compared with other crops.

Following this, the committee believes that it would not be appropriate to single out palm oil for inclusion in product ingredients lists for health reasons, because listing palm oil would not on its own provide an indication of the nutritional content of foods. It, however, supported the broader approach to labelling reform outlined in Labelling Logic: Review of Food Labelling Law and Policy (2011), including more detailed label information around sugars, fats and oils.

Felda's sugar unit IPO to raise RM800 million

Kuala Lumpur: MSM Malaysia Holdings Bhd's (MSM) initial public offering (IPO) is poised to raise around RM800 million for the sugar producer and its holding company.

MSM's listing on Bursa Malaysia's Main Market is slated for June 28, involving up to 234.56 million shares to retail and institutional investors. Some RM370 million of the RM800 million proceeds will go to MSM parent Felda Global Ventures Holdings Sdn Bhd (FGVH), while another RM422 million will go directly to MSM's coffers.

FGVH, which now has a 48.68 per cent stake in MSM, is selling off 15.6 per cent of MSM shares for some RM370 million. The RM422 million, meanwhile, will arise from MSM's existing shares. MSM will also sell a portion of its shares to institutional investors at between RM3.30 and RM3.50 per share. The final retail price, after completion of the institutional book building, will be at a slight discount of RM3.38 or 97 per cent of the institutional price.

MSM executive director Datuk Sabri Ahmad said it will use about RM320 million from the proceeds to expand its refining capacity to 1.5 million tonnes by 2016 from the current 1.1 million tonnes.

That leaves around RM100 million of the proceeds for the expansion of MSM's sugar cane plantations in Southeast Asia. "We want to expand our sugar cane plantations within Southeast Asia. It could be greenfields or brownfields. We're still studying the merits," said Sabri, who is also FGVH group president and chief executive officer.

He was speaking to reporters after Deputy Prime Minister Tan Sri Muhyiddin Yassin launched MSM's prospectus here yesterday. This is the first time the Federal Land Development Authority (Felda), one of the world's largest diversified agriculture groups, is taking one of its units public.

MSM houses Felda's sugar cane plantation and sugar refining operations. Its refined sugar is retailed under the brandnames "Gula Prai" and "Gula Perlis". Among MSM clients are F&N Beverages Manufacturing Sdn Bhd, Permanis Sdn Bhd, Kraft Foods Manufacturing Malaysia Sdn Bhd, Cadbury Confectionery Malaysia Sdn Bhd, Nestle Manufacturing (M) Sdn Bhd and Yeo Hiap Seng (Malaysia) Bhd.

Two years ago, Felda, via FGVH, bought MSM (then known as Malayan Sugar Manufacturing Co Bhd) for RM1.22 billion from PPB Group Bhd, a company controlled by Malaysia's richest man Robert Kuok.

Last year, total production of refined sugar in Malaysia was 1.66 million tonnes, of which MSM and Kilang Gula Felda Perlis Sdn Bhd have 57 per cent market share. The other player is Tradewinds.

Malaysia consumes more sugar than it is able to grow and relies heavily on imports. Last year, 1.2 million tonnes of raw sugar were imported from Brazil, Australia, Guatemala and Thailand. About half of MSM's raw sugar supply is procured via long-term contracts while the remainder is purchased at prevailing market prices.

Last month, the Domestic Trade, Co-operatives and Consumerism Ministry raised the sugar retail price to RM2.30 a kg from RM2.10. The price hike is estimated to save the government RM116.6 million in sugar subsidy this year.

As at March 2011, MSM's assets totalled RM1.79 billion. Last year, it posted RM232.9 million profit on RM2.17 billion revenue. CIMB Investment Bank Bhd is the lead manager for the share sale. Post-listing, FGVH will be left with 40.03 per cent stake in MSM.

Costlier electricity & natural gas

KUALA LUMPUR: Analysts are still bullish on rubber glove stocks and consider them low risk despite the increase in electricity and natural gas tariffs.

Effective today, the government raised electricity rates by 7 per cent. There is also a 20 per cent price hike for natural gas across industries.

Heavy gas users like some steel millers, petrochemical, oleochemical and fertiliser producers consuming more than two mmscfd (million standard cubic feet per day), will need to pay RM18.35 per mmBtu (million metric British thermal unit) instead of RM15.35/mmBtu, previously.

The last time the government raised gas prices was in August 2008 by a hefty 72 per cent to RM22 per mmBtu from RM12.80 per mmBtu. After much complaints, the government, in March 2009, lowered the gas tariffs by 30 per cent to RM15.35 per mmBtu.

Fiona Leong of Citi Investment Research is keeping her earnings forecasts for glovemakers unchanged because the 20 per cent gas price hike would only raise operating costs by 0.7 per cent, if there is no cost pass through.

In her note to investors, she said the hike would have a small knock on earnings of glovemakers for June and July because selling prices for deliveries had already been firmed up.

But glovemakers are hopeful of passing on the higher fuel costs as the gradual easing in natural latex price gives room for price adjustments. Bulk latex price has retreated by 11 per cent from an average of RM10.45 per kg in April to RM9.43 per kg in May.

Leong noted that rubber glovemakers face sharp volatility in latex price and the stronger ringgit. This would hamper accurate adjustments of selling prices.

Rubber glove manufacturers using less than two mmscfd, however, will need to pay the new rate of RM16.07 per mmBtu. This is 7 per cent more than the old RM15.00 per mmBtu rate.

Jason Yap of OSK Investment Research said given that the quantum and timeline of the hike of every six months until 2015, rubber glove manufacturers would be able to make adjustments to their gloves prices in advance and pass on the energy cost increase to their customers.

His top picks include Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd. He has valued Top Glove at RM6.50 and expects Supermax to rise up to RM6.91. His target price for Kossan is RM5.

Yap said the companies are the main beneficiaries from easing of latex price as they have higher natural rubber glove than the nitrile variant.