KUCHING: The oil palm business has emerged as the biggest revenue generator for Jaya Tiasa Holdings Bhd, a traditional timber-based company.
The group’s planted oil palm areas has expanded to 69,589 hectares, spreading over 10 plantations in Sarawak, which have all matured.
The group also owns four palm oil mills having the combined capacity to process 1.782 million tonnes of fresh fruit bunches (FFBs) per annum.
In financial year ended June 30, 2019 (FY2019), the oil palm business contributed 72 percent or RM457.3 million to Jaya Tiasa’s group revenue of RM637.7 million. Jaya Tiasa group diversified into palm oil business in 2002, about 15 years after it began as a downstream wood processing company in 1987.
However, the oil palm segment’s revenue has fallen by RM96.2 million from RM553.5 million in FY2018 or down by 17 percent despite a two percent increase in FFB production volume to about 1.096 million tonnes year-on-year.
Jaya Tiasa chief executive officer Datuk Wong Sie Young attributed the poor performance of the oil palm business to a 23 percent drop in FFB and crude palm oil (CPO) prices despite a 16 percent jump in CPO production volume.
The group’s average selling price of FFBs fell to RM379 per tonne from RM495 per tonne in FY2018 while the average selling price of CPO was down to RM1,935/tonne from RM2,504/tonne. The average selling price of palm kernel also plunged, to RM1,342 per tonne from RM2,096 per tonne year-on-year.
The palm oil segment performed poorly, recording a pre-tax loss of RM126.8 million, which is 66 percent of the group’s total losses in FY2019.
“Weak CPO price and increased labour cost largely affected our performance in this segment,” Wong explained in the company’s 2019 annual report.
He said the group’s four palm oil mills produced 202,076 tonnes of CPO and 39,7210 tonnes of palm kernel during the financial year under review. The utilisation rates of the mills have increased to between 54 percent and 80 percent from 44 percent to 77 percent in FY2018.
“Mills’ utilisation rate will continue to improve in line with the gradual increment of our FFB production.
“With better quality of FFB input from more matured trees, we expect the production volume and oil extraction rate (OER) to improve further while imposing stringent control over operational efficiency to ensure better performance in the next financial year,” said Wong.
Reviewing the yearly operation, he said the group had taken various initiatives, such as targeted spending per hectare for each palm oil estate, to improve cost effectiveness.
“We also underwent internal organisation restructuring to ensure better productivity from our workforce.
“These measures have enabled the division to reduce the cost of production of FFB, resulting in lower operating losses from the palm oil division in the last quarter.
“We will continue to initiate more measures to reduce the overall cost of production further in the coming financial year. We will consider hedging in order to lock in future price should the right opportunity arises.”
Wong said the group remains optimistic about the long term prospects of the palm oil industry despite the current low CPO price.
“By enhancing our yield and reducing our cost, we are poised to reap better profits in the event the CPO prices start to trend upwards,” he added.
Jaya Tiasa chairman Tan Sri Abdul Rahman Abdul Hamid said the group’s net loss widened to RM265.3 million in FY2019 from RM69.8 million in FY2018 while group revenue fell by 24 percent to RM637.7 million from RM841.7 million .
“The reasons for the widening loss were due to 23 percent lower CPO selling price, significant lower sale volume for our timber products and the derecognition and reversal of deferred tax assets on unabsorbed tax losses in loss-making subsidiaries amounting to RM80 million recognised during the year.
“Loss per share was 27.48 sen compared to 7.34 sen in the previous year. Shareholder funds decreased to RM1,170 million compared to RM1,459 million achieved during the preceding financial year.
“Net tangible assets per share stood at RM1.21 for the year ended 30 June 2019,” he added.
According to Abdul Rahman, the high labour intensive oil palm and timber industries were gravely affected by the imposition of higher minimum wages in January 2019, shifting of levy payment from the workers to the employers, together with a six percent service tax on foreign workers’ recruitment fee and a 10 percent withholding tax.
He said all of these have contributed to increased production cost.
