Kurnia boosts yields

Friday April 11, 2008
Kurnia boosts yields
By C. S. TAN

KUALA LUMPUR: Smallish Kurnia Setia Bhd was known to have a very low yield in its production of palm oil fruits. That has changed as its new management has raised crop productivity by about 40%.

Kurnia's yield per hectare was only about 14 tonnes in 2005 when new major shareholders came into the company. After two years of improved estate management practices, the yield rose to 18.7 tonnes last year, and the management is targeting more than 20 tonnes this year.

All of the group's 10 estates are in Pahang, where its Klau estate near Raub has achieved a yield of 24 tonnes. The management was trying to replicate that level in the other estates, managing director Datuk Halim Ibrahim told StarBiz recently.

The group produced 44,850 tonnes of fresh fruit bunches (FFB) in the first quarter, 55% higher than the output of 28,290 tonnes in the year-earlier period.

The new major shareholders – members of the Pahang royal family – bought a substantial stake in Kurnia in 2005, which was later increased to about 31%. The vendor was Pahang Agricultural Development Corp (LKPP), which retains a substantial ownership of about 26%.

The state government has interests in two other listed plantation companies – LKPP has a stake of 8.1% in Far East Holdings Bhd, and the state government directly owns 69% of Mentiga Corp Bhd. LKPP also owns hundreds of thousands of acres of plantations in Pahang.

Kurnia chief operating officer Tengku Datuk Zubir Tengku Ubaidillah said that as the group's results improved, LKPP still benefitted as a shareholder. “If Kurnia flourishes, LKPP also flourishes,” he said.

LKPP benefits from the dividends paid out by Kurnia and as the market value of the latter rises.

Halim has more than 30 years' experience in oil palm and rubber while Tengku Zubir previously headed the property division of Road Builder Holdings Bhd,

Kurnia obtained an average price of RM2,900 a tonne for crude palm oil (CPO) in its fourth quarter ended Dec 31, 2007. That is a very good price, considering its production cost of RM1,050 a tonne, which Halim said included depreciation and contribution to Malaysian Palm Oil Board's cess.

The price obtained for CPO enabled Kurnia to produce a net profit of RM10.2mil in the fourth quarter.

The company does not sell in the futures market, selling entirely in the spot market as it does not own a palm oil mill. It therefore achieves good prices when the CPO price trends upward.

The group intends to operate its own mills. It will build one of its own and a second jointly with LKPP.

It is raising about RM38mil cash through a rights issue for which today is the last date for acceptances. The amount raised will be used for plantation expenditure and property development.

It is not in immediate need for the cash proceeds. Kurnia held cash of RM27mil at the end of last year, and assuming operating cashflow of about RM40mil this year, it would have RM67mil or more in cash, even without the rights proceeds.

“We need a war chest in case there are opportunities for land in a very good location at a very good price,” Tengku Zubir said.

Kurnia will be developing one of its estates that are just 10km from Kuantan. “As with any other plantation company, when we have an estate near a town, we'd like to unlock its value,” Tengku Zubir said.