Our Business

BUSINESS OVERVIEW

The Group is principally involved in cultivation of oil palm, processing of FFB to produce crude palm oil (CPO) and palm kernel (PK). The Group is presently undertaking planting and development on 22,763 hectares of land of which approximately 13,000 hectares are suitable for oil palm planting. Plantation operation is organised under six (6) estates, namely Imbak, Gunung Rara, Labau, Maliau, Lokan and Luasong estates and one (1) palm oil mill with capacity of 60/90 MT FFB per hour. All are located in the locality of Gunung Rara/Kalabakan, Sabah.

The Group is working towards certification by the Roundtable for Sustainable Palm Oil (RSPO) and is committed to becoming an environmental and community friendly organization.

FINANCIAL RESULTS

Key Financial Performance
The purpose of this review is to provide an overview of key financial performance at Group Level.

    2017 2016
Revenue RM’000 138,211 136,349
Profit before interest & taxation RM’000 57,472 45,187
Pre-tax profit RM’000 55,451 41,387
Net profit after tax RM’000 42,697 31,358
Return on average equity (ROE) % 12.53 9.90
Net cash generated from operating activities RM’000 61,857 34,708
Net gearing % 10 15
Total Shareholder’s fund RM’000 340,858 316,802

 

Segmental contributions to operating profit

  2017

RM’000
2016

RM’000
Change %
Plantation 57,472 39,393 70%
Contract Timber Logging - 5,794 (33%)
Total Operating Profit 57,472 45,187 42%
  • Plantation segment’s contribution increased by 46% to RM57.472 million due to higher FFB production and higher CPO price. Profit was all generated from palm products segment as the logging contract expired on 4 June 2016 and was not renewed.

  • Pre-tax profit increased 34% to RM55.451 million compared to the previous financial year due to reasons as explained above and also on account of lower interest expenses.

  • Net profit attributable to shareholders increased to RM42.697 million with Earning per Share at 8.92 cent.

  • ROE improved to 12.53% compared to 9.90% for the previous financial year.

  • The Group generated Operating Cash Flow of RM61.857 million against RM34.708 million in the preceding year. Consequent to healthy cash flow generated from operations, the Group’s net gearing has been reduced to 0.10 and Net Interest Covered improved to 25 times (2016: 12 times)

Financial Assets and Financial Liabilities

For the financial year 2017, the Group spent RM16.732 million for the acquisition of vehicles and field/mill equipment as well as the construction of housing, staff and workers’ quarters and stores for fertiliser and chemicals. The Group also spent RM10.612 million on oil palm plantation development.

The Group’s shareholders’ equity as at 31 December 2017 stood at RM340.858 million, an increase of RM24.056 million as compared to FY2016. The increase was mainly due to net profit for the year of RM42.697 million. During the financial year, the Group payout total single-tier dividends of 4 sen amounting to RM19.154 million.

As at 31 December 2017, the Group’s borrowings stood at RM35.861 million as compared to RM53.837 million in FY2016.

BUSINESS REVIEW
Plantation Operations

Out of a total land bank of 22,763 hectares, it is estimated that 12,722 hectares are plantable. At the end of the financial year, total area planted is 12,064 hectares of which 10,701 hectares are matured.  A further 361 hectares will come into maturity during 2018.  We expect to complete our planting programme by 2018.
The area statement is as shown below:

  2017


Ha
2016


Ha
Matured 10,701 9,542
Immature 1,363 2,363
Total Planted 12,064 11,905
Plantable 658 896
Unplantable 10,041 9,962
Total Area 22,763 22,763

As can be discerned from the area statement, the Group’s plantations operate under rather challenging environment as most of the area is undulating to hilly. On the other hand, generally favourable rainfall pattern is a positive factor. Nonetheless management is confident that above average yield can be achieved with hands-on management and dedication to details. Yield achievable is further augmented through planting of TSH’s Wakuba high yielding clonal palms. Critically, the Group is able to tap on the management expertise of TSH Resources Bhd on agronomic and agricultural husbandry practices.

With the waning impact of the 2016/17 El Nino phenomenon in the first quarter of 2017, the Group is able to produce 196,597 MT of FFB in 2017 which represents an increase of 23% against FY2016. The increase is principally due to higher hectarage under harvesting and improving age profile of the plantings. However yield per mature hectare improved to 18.37 MT per hectare in 2017 from 16.71 MT per hectare in 2016.

The Group’s oil palm ages are between 1 to 10 years with about 11% being immature palms. About 53% are young mature palms (4 - 7 years) with an increasing yield trend in coming years and 36% of the total palms are of prime mature (8 - 10 years).  As such there will be no necessity for replanting for the next 15 years.

Details of Oil Palm Maturity Profile are as follow:

  Imbak
Ha
Labau
Ha
Maliau
Ha
Lokan
Ha
Luasong
Ha
Gunung Rara
Ha
Total
Ha
Immature 138 116 135 669 144 161 1,363
Young Mature 510 1,490 868 1,082 2,068 311 6,329
Total Operating Profit 1,150 665 1,089 477 - 991 4,372
Total 1,798 2,271 2,092 2,228 2,212 1,463 12,064

The Group recognises the importance of quality planting materials as the primary building block for long term competitiveness and sustainability. Towards this end more new area will be planted with TSH Wakuba clonal oil palm materials which have proven to produce high oil yield per hectare and at the same time stringent culling, best nursery upkeep practices and field planting standard will be observed.

While many factors, including weather conditions influence yield, management has to focus on controllable factors, be hands on and pay attention to details in order to achieve high productivity and cost efficiency. Quality Management Team has been established at each estate to ensure all aspects of operation comply with Standard Operating Procedures.

The Group is firmly committed to sustainability and has been a member of Roundtable on Sustainable Oil Palm (RSPO) since 2014.  Certification process is in progress and the Group targets to have the mill and one (1) estate certified in 2018.

Milling Operations

The Group operates a 60/90 MT FFB per hour palm oil mill which commenced commercial operation on 17 December 2014. In FY2017, total FFB processed was 194,310 MT which is 35,401 MT higher than the preceding financial year. The mill recorded total production of 44,758 MT (2016: 39,135 MT) of CPO and 6,779 MT (2016: 5,411 MT) of PK. The Group achieved OER of 23.03% for CPO (2016: 24.63%). Heavy rainfall especially during the second half of the year adversely impacted FFB collection operating and consequently oil extraction rate.  Despite this, OER is still much above industrial average and can be sustained through the Group’s commitment to KPI oriented process and procedures in oil palm cultivation, harvesting and milling operations.

Mill processing statistics are as shown below:-

  2017 2016 Change %
FFB Processed (MT) 194,310 158,909 22.28%
Mill Production (MT)      
  • CPO
44,758 39,135 14.37%
  • PK
6,779 5,411 25.28%
Oil Extraction Rate (%)      
  • CPO
23.03 24.63 (6.49%)
  • PK
3.49 3.41 2.35%
Average Selling Price (RM/MT):      
  • CPO
2,742 2,580 6.28%
  • PK
2,458 2,482 (0.97%)
Sales Volume (MT)      
  • CPO
44,100 39,246 12.37%
  • PK
6,658 5,464 21.85%




Timber Logging Operation

The Group has an Eco-logging extraction contract with Rakyat Berjaya Sdn. Bhd., which expired on the 4th June 2016 and was not renewed.

Timber segment contributed RM5.794 million profit to the Group’s revenue for FY2016 (FY 2017: Nil).

OUTLOOK AND PROSPECT

Management is confident of a double digit percentage growth in FFB production in 2018 due to favourable weather in 2017 and in the case of the Group, production should also be boosted by the better age profile as more area comes into higher yielding age and with additional area coming into maturity and harvesting.

On the global front, there will be more economic uncertainties brought about by political changes in Europe and USA with the latter posing a risk of trade war which could dampen world trade and economic growth. CPO price for 2018 will be governed by the extent increase in CPO production in Indonesia and Malaysia, supply of oilseed crop from USA/ South America and demand from India and People’s Republic of China. Nonetheless CPO price is expected to be reasonably remunerative for 2017 although prices have corrected from the high of RM3,200 pmt reached in January 2017.

For the longer term the Group is optimistic about the prospects of palm oil industry due to population growth propelling increased demand, higher per capital income and the many health qualities of palm oil.

To enhance long term sustainability management will continue its relentless drive for productivity and efficiency improvement to reduce unit cost of production.

DIVIDEND

The Board has recommended Final Dividend of 3 sen per share for the year ended 2017 subject to shareholder’s approval at the Annual General Meeting to be held on 21 May 2018.  Coupled with an interim dividend of 2 sen paid in 2017, total dividend for the FY2017 comes to 5 sen per share.

With the majority of the Group’s plantation already mature and on an ascending yield curve phase and as much of the supporting infrastructural facilities, offices, stores, staff and labour quarters and workers’ amenities having been completed, future capital expenditure will be substantially reduced.

In the light of the above, your Board has adopted a dividend policy to distribute up to 70% of profit after tax by way of dividend.

This statement is made in accordance with a resolution of the Board of Directors passed on 13 April 2018.