Our Business

BUSINESS OVERVIEW

The Group is principally involved in cultivation of oil palm, processing of Fresh Fruits Bunches (“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 12,500 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 MTFFB per hour. All are located in the locality of Gunung Rara/Kalabakan, Sabah.

The Group has obtained its Malaysian Sustainable Palm Oil (“MSPO”) certification on 21 June 2019.The Group is also a member of the Roundtable for Sustainable Palm Oil (“RSPO”) and is committed to becoming an environmental and community friendly organisation.

FINANCIAL RESULTS

Key Financial Performance

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

    2019 2018
Revenue RM’000 118,600 114,222
Profit before interest & taxation RM’000 18,321 41,276
Profit before tax RM’000 18,308 12,485
Profit net of tax RM’000 14,720 9,465
Return on average equity ratio % 4.62 3.07
Net cash generated from operating activities RM’000 33,467 35,078
Net gearing ratio % 7 11
Total Shareholder’s fund RM’000 318,457 308,526

The Group’s revenue for FY2019 increased by 4% to RM118.600 million, due to higher sales volume of CPO and PK despite lower average selling prices compared to preceding year.

The pre-tax profit increased by 47% to RM18.308 million compared to the previous financial year due to higher sales volume of CPO and PK.

Financial Assets and Financial Liabilities

For the financial year 2019, the Group spent RM6.998 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 RM3.646 million on oil palm plantation development.

Biological assets recorded a profit on FFB valuation of RM2.519 million compared to preceding year.

The Group’s shareholders’ equity as at 31 December 2019 stood at RM318.457 million, an increase of RM9.931 million as compared to FY2018. The increase was mainly due to net profit for the year of RM14.720 million off-set by a single-tier dividend of 1 sen amounting to RM4.789 million paid during the year.

As at 31 December 2019, the Group’s borrowings mainly comprised of revolving credits which stood at RM15.000 million as compared to RM24.999 million in FY2018, attaining a reduced net gearing ratio of 7% as compared to 11% in the preceding year. The term loan portion has been fully paid off during the financial year under review.

BUSINESS REVIEW

Plantation Operations

Out of a total land bank of 22,763 hectares, it is estimated that 12,607 hectares are plantable. At the end of the financial year, total area planted is 12,208 hectares of which 11,260 hectares are matured. A further 245 hectares will come into maturity during 2020. We expect to complete our planting programme by 2021.  The area statement is as shown below:

  2019


Ha
2018
Ha
Matured 11,260 11,074
Immature 948 916
Total Planted 12,208 11,990
Plantable 399 612
Unplantable 10,156 10,161
Total Area 22,763 22,763

In FY2019, the Group’s plantation operating environment was rendered more challenging by the weak El Nino weather with prolonged dryness coupled with most of the area being undulating to hilly. On the other hand, lower selling prices of CPO and PK also impacted the overall performance. Nonetheless, management is confident that the 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 Berhad on agronomic and agricultural husbandry practices.

During the financial year, the Group is able to produce 224,517 MT of FFB, which represents an increase of 7% against FY2018. The increase is principally due to higher hectarage under harvesting and improving age profile of the plantings. Yield per mature hectare improved to 19.94 MT per hectare in 2019 from 18.96 MT per hectare in 2018.

The Group’s oil palm ages are between 1 to 12 years with about 8% being immature palms. About 26% are young mature palms (4-7 years) with an increasing yield trend in coming years and 66% of the total palms are of prime mature (8 years and more).  As such there will be no necessity for replanting for the next 13 years.

Details of Oil Palm Maturity Profile are as follow:


  Imbak
Estate

Ha
Labau
Estate

Ha
Maliau
Estate

Ha
Lokan
Estate

Ha
Luasong
Estate

Ha
Gunung Rara
Estate

Ha
Total
Ha
Immature 39 88 89 553 179 - 948
Young Mature 99 149 422 617 1,452 472 3,211
Prime Mature 1,665 2,042 1,581 1,130 640 991 8,049
Total 1,803 2,279 2,092 2,300 2,271 1,463 12,208

The Group recognises the importance of quality planting materials as the primary building block for long term competitiveness, business continuity and sustainability. Towards this end, any new area and/or supplying will be planted with TSH Wakuba clonal oil palm materials to accelerate higher oil yield per hectare as well as improved oil extraction rate (“OER”), while concurrently observing stringent culling, best nursery upkeep practices and field planting standard.

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, which includes the reviewing of contracts and piece-rated rates constantly. 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 certified by MSPO in 2019. The Group is also a member of the Roundtable on Sustainable Oil Palm (RSPO).

Milling Operations

The Group operates a 60/90 MT FFB per hour palm oil mill which commenced commercial operation on 17 December 2014. In FY2019, total FFB processed was 229,918MT which is 21,897 MT higher than the preceding financial year. The mill recorded total production of 52,394 MT (2018: 46,542 MT) of CPO and 8,016 MT (2018: 7,317 MT) of PK. The Group achieved OER of 22.79% for CPO (2018: 22.37%). Heavy rainfall especially towards the end of the year affected harvesting and disrupted the FFB evacuation process, consequently impacting OER. Despite this, OER is still much above industrial average and can be sustained through the Group’s commitment to KPI oriented processes and procedures in oil palm cultivation, harvesting and milling operations.

Mill processing statistics are as shown below:-

  2019 2018 Change (%)
FFB Processed (MT) 229,918 208,021 11%
Mill Production (MT)      
  • CPO
52,394 46,542 13%
  • PK
8,016 7,317 10%
Extraction Rates (%)      
  • CPO
22.79 22.37 2%
  • PK
3.49 3.52 (1%)
Average Selling Price (RM/MT):      
  • CPO
2,086 2,177 (4%)
  • PK
1,183 1,714 (30%)
Sales Volume (MT)      
  • CPO
51,940 46,328 12%
  • PK
7,962 7,304 9%



OUTLOOK AND PROSPECT

Management is confident of a high percentage growth in FFB production in 2020withstringent management control. In the case of the Group, production should also be boosted by the better age profile as more areas come into higher yielding age and with additional areas coming into maturity.

On the global front, there will be more economic uncertainties brought about by the assessment made by the World Health Organisation (WHO) that coronavirus, COVID-19 can be characterised as a pandemic and policy changes in India and USA with the latter signing an initial Phase One trade deal with China which could impact palm oil demand from China. CPO price for 2020 will be governed by the extent of increase in CPO production in Indonesia and Malaysia, supply of oil seed crop from USA/South America, movement in crude oil price and demand from India and China. Market remains concerned over COVID-19 pandemic as numbers are escalating fast in Italy, United Kingdom, Russia, USA and certain part of Europe and crashes in crude oil price which could affect the potential increase in demand from bio-diesel mandates by Indonesia and Malaysia. With a general consensus that prices for 2020 might be better than 2019, where CPO price recovered from the unsustainable level of about RM1,900 per MT, the Group is confident of achieving much better profit for 2020.

For the longer term, the Group is optimistic about the prospects of the palm oil industry due to population growth propelling increased demand, higher per capital income, the many health qualities of palm oil and the wide usage of palm oil in oleo-chemical and bio-diesel industries.

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 a Final Dividend of 2 sen per share for the year ended 2019 subject to shareholder’s approval at the forthcoming 26th Annual General Meeting.

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 as well as workers’ amenities having been completed, future capital expenditure will be substantially reduced.

During the financial year under review, the Group was conferred with an award, which was voted the “Highest Return on Equity over Three Years” in the plantation sector presented by The Edge Malaysia Centurion Club Corporate Awards 2019.

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