Indonesia: Palm oil company Sawit Sumbermas sticks to expansion plan

Prima Wirayani, The Jakarta Post 18 Jan 16;

Publicly listed palm oil company PT Sawit Sumbermas Sarana will continue its plantation expansion plan this year, hoping to benefit from the plunging price of crude palm oil (CPO), which could lower acquisition costs.

Sawit Sumbermas independent director and corporate secretary Harry M. Nadir said over the weekend that the company would allocate around US$40 million to $50 million in capital expenditure (capex) to either plant more oil-palm trees or purchase more plantations, as planned since the end of last year.

“The capex will be from our internal funds,” he said over the phone.

In a recent company statement, Harry said that his company preferred to acquire young and planted oil-palm plantations located in Central Kalimantan to add the firm’s land bank. He also stated that Sawit Sumbermas’ capital structure was good enough to support the acquisition strategy.

Sawit Sumbermas booked a slightly lower sales value of Rp 1.76 trillion ($125.85 million) as of September last year. The value was 5.88 percent down year-on-year (yoy) compared to Rp 1.87 trillion booked in the same period in 2014.

Its net profit also slump 10.25 percent yoy to Rp 416.04 billion from Rp 463.57 billion booked as of September 2014.

Harry said that the company would use the capex to continue the acquisition of palm oil companies PT Menteng Kencana Mas (MKM) and PT Mirza Pratama Putra (MPP), whose total plantation area was 26,800 hectares and located in Central Kalimantan. The acquisitions would give Sawit Sumbermas 99,618 hectares worth of plantations with total planted areas of 66,693 hectares.

In letters addressed to the Financial Services Authority (OJK) in November and December last year, the company said that the acquisitions would be carried out through its subsidiary, PT Mitra Mendawai Sejati. The value of MKM and MPP acquisitions reached $35 million and $15 million, respectively, which funds would be sourced from Sawit Sumbermas’ internal cash with support from bank loans.

“We will look at the [acquisition] value developments if they require bank loans,” Harry said.

He added that his company did not slow its pace of expansion although commodity markets cooled because lower CPO price would also mean cheaper plantation value.

“Once the price of palm oil increases, we will be able to benefit from it faster,” he said.

Index Mundi data said that CPO futures end-of-day settlement price for February contracts month stood at $562 per metric ton as of Dec. 4 last year. The price was the lowest since December 2008 when the price plummeted to $440.38 per metric ton.

The Indonesian Palm Oil Board (DMSI) also said previously that it would be difficult for the CPO price to climb higher than $650 per ton in 2016.

Harry said that Sawit Sumbermas’ production growth would depend on the movement of CPO price.

“If the price increases so does our production,” he said, adding that his firm’s production usually grew 10 percent to 15 percent annually.

Last year, the CPO producer aimed for 1.15 million tons of total production of CPO, oil-palm fruit brunches and palm kernels, 15 percent higher than the previous year.

The company runs five processing facilities in its plantation area, with a total capacity of 1.53 million tons per year for oil palm-to-CPO processing and 45,000 tons for palm kernel crushing.