Jan 27, 2005 in News

Tuesday January 25, 2005 - THE proposed purchase of an oil palm plantation in Indonesia by motor vehicle parts maker Delloyd Ventures Bhd was adversely received by investors, its share price closing 22 sen lower at RM2.46 when the stock was re-quoted yesterday.

It appears the acquisition has been misunderstood. The group is acquiring a 60% stake in a plantation company for RM42.9 mil cash.

Delloyd can comfortably afford that, as the group is cash rich, with about RM52 mil cash at the end of September last year. That cash would have been earning a net return of perhaps 2%, with no prospects for growth. The acquisition will put the bulk of that cash to better use.

The plantation company, PT Rebinmas Jaya, owns 34,450 acres of oil palm plantations on Pulau Belitung, off Sumatra. About half the acreage has mature palms and the rest to be planted.

Delloyd's share of that acreage, through Rebinmas, can add about RM16 mil a year in pre-tax profit to the former, assuming a profit of RM100 an acre a month.

The location of the estates is favourable, Delloyd managing director DatukTee Boon Kee told StarBiz yesterday.

There are three other companies with plantations on that island, including Kuala Lumpur Kepong Bhd. The palm oil mills on the island are all owned by these companies. That means theft of fresh fruit bunches will be minimal as there are no independent mills to sell pilfered fruits to.

Datuk Tee Boon KeeNot that investors should worry about Delloyd's ability to contain pilferage. Although its core business is motor vehicle parts, it had bought an oil palm estate in Batang Berjuntai, Selangor, some years back.Even though that estate has just 3,500 acres and was bought for its potential for property development, it made an operating profit of RM6.7mil in 2003.

Delloyd has managed that well and from that experience, it decided todeploy some of its surplus cash to expand its exposure to oil palm.

"Over the long term, this plantation (in Indonesia) will be very good. It will help stabilize our earnings; and also help us to maintain the dividend," Tee said.

The plantation can be profitable even if crude palm oil (CPO) prices drop to RM1,000 a tonne, he added. CPO prices are currently around RM1,300.

As for planting expenditure for the rest of the estate, he said a portion of the earnings from the planted acreage could be ploughed back for that.

A company called Taipan Hectares Sdn Bhd will pay proportionately for a 35% stake in Rebinmas. Tee said Taipan was owned by his family. That serves to demonstrate his confidence that Rebinmas is a good investment.

Like the location, the terms of ownership are also favourable. There is no requirement, for instance, for local Indonesian ownership. Rebinmas will continue to be 5% owned by an Indonesian company, an existing shareholder.

Rebinmas' estates are owned for a period of 30 years renewable for another 30 plus 25 years, like leasehold land in Malaysia.

While Delloyd is using its surplus cash for some diversification, it is still growing it's auto parts business. It will be investing, for instance, in new equipment to produce auto parts for Perodua's new models.

In addition, its auto parts plant in Indonesia, which was set up last year, should be profitable starting this year. That supplies auto parts to Toyota Indonesia and efforts are being made to sell to other car assemblers there.

Delloyd, in its corporate history, has yet to throw up any unpleasant earnings surprises. The Batang Berjuntai estate has been profitable, and its motor vehicle distribution company " Atoz Motor Marketing Sdn Bhd "that was acquired early last year made an operating profit of RM1.6 mil in the first nine months last year.

The Delloyd group is financially conservative, with no short- or long-term debts last year.

- The Star 27 Jan 2005