CBIP to boost upstream oil palm plantation business with land acquisition

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KUCHING: With the latest acquisition of two parcels of greenfield plantation land measuring a total of 21,674 hectares in Indonesia, CB Industrial Product Holding Bhd (CBIP) is expanding its plantation landbank to further develop its upstream oil palm plantation business.

Analysts believe the acquisition will diversify the company’s earnings base in the longer term.

The research arm of Hong Leong Investment Bank Bhd (HLIB Research) in a report yesterday said the land acquisition is in line with the company’s strategy to expand its upstream oil palm plantation business.

By expanding the upstream oil palm plantation business, RHB Research believes CBIP can diversify its earnings base in the longer run.

On another note, RHB Research Institute Sdn Bhd (RHB Research) in a separate report said the land purchase will boost CBIP’s total plantation landbank in Indonesia to 86,715 hectares.

The two parcels of greenfield plantation land is located near CBIP’s existing plantation in Kalimantan, Indonesia.

Thus, the research firm believed that the close proximity of the plantation landbank will provide synergistic effect for the company’s operations.

CBIP in an announcement to Bursa Malaysia on June 20 said the company had entered into a conditional share sale and purchase agreement to acquire a 94 per cent stake in Indonesia’s PT Mayangan Jaya for RM8.2 million.

PT Mayangan Jaya has been granted two parcels of land with a total of 21,673.8 hectares in Central Kalimantan, Indonesia consisting 19,607.2 hectares of convertible production forest and 2,066.6 hectares of other purpose area which will be used as oil palm plantation.

CBIP believed that the land acquisition is expected to be completed by the fourth quarter of 2014.

In the meantime, RHB Research observed that the price for the land acquisition was reasonable.

The research firm noted that the land is priced at an average price of US$126 per hectare or approximately RM404 per hectare which is relatively inexpensive for greenfield land in Kalimantan.

Similarly, the research firm pointed out that previous land transaction in Kalimantan have been in the range of US$400 to US$1,200 per hectare.

Hence, given CBIP’s strategy to further enhance its upstream operations, analysts believe that the company’s forward earnings will gain from the sale of fresh fruit bunches (FFB) production as well as higher demand for palm oil mill construction.