KUCHING: WTK Holdings Bhd foresees better performance of its oil palm business with anticipated significant increase in fresh fruit bunch (FFB) production and higher output of its sole palm oil mill this year.
WTK, which is one of Sarawak’s top six timber groups, expects its FFB production to rise by more than 20 percent to reach about 110,000 tonnes in 2019 from 89,400 tonnes in 2018, in line with an increasing mature plantation hectarage, improvement in FFB yield, coupled with higher age profile of palms.
The FFB output in 2017 was 79,500 tonnes. The group’s palm oil mill is located in Limbang.
WTK group owns five oil palm plantations in Sibu, Miri and Limbang Divisions. Total mature palm hectarage stood at 8,600 ha at end-2018.
Despite the increase in FFB production, the group anticipates revenue from FFB sales to be flat as crude palm oil (CPO) prices are expected to trend slightly lower than 2018 in light of the negative sentiment from the recent European Union’s resolution to restrict palm oil use in biofuel as well as increasing supply from Indonesia.
“However, the group’s continuous efforts to review and reduce its operational costs for field upkeep, maintenance and manuring programme are expected to mitigate the negative impact from low CPO prices.
“On the other hand, the palm oil mill will see further upside from its 2018 performance as production of CPO and PK (palm kernel) are expected to reach 23,000 MT and 5,000 MT respectively in 2019 due to an increased supply from more matured palms from its own estates as well as purchase from third-party estates,” WTK said in its 2018 annual report.
The mill, which has a processing capacity of 30 tonnes of FFB per hour, processed 93,800 tonnes of FFB to produce 20,800 tonnes and 4,800 tonnes of CPO and PK respectively in 2018.
Currently, the mill obtains about 20 percent of its FFB requirements from the group’s own estates while the bulk 80 percent from third-party plantations. The mill’s utilisation rate is expected to be raised to 67 percent in 2019 from 63 percent in 2018.
The mill is expected to obtain Malaysian Sustainable Palm Oil (MSPO) certification in June 2019.
With anticipated improved performance, the group expects its oil palm division to register lower losses in financial year ending Dec 31, 2019 from net loss of RM26.3 million in FY2018.
Despite increase in revenue to RM78.7 million from RM59.6 million in FY2017, the plantation division’s net loss has widened from RM19 million in FY2017 mainly due to a 26 percent drop in FFB average selling price and loss of RM12 million from the adoption of Malaysian Financial Reporting Standard (MFRS) 141 and 116.
On the group’s traditional timber business, WTK said it recorded higher revenue of RM667.9 million in FY2018 (representing 82 percent of total revenue of RM816 million) from RM659.8 million in FY2017. However, the division’s net profit was down to RM17.6 million from RM24.9 million year-on-year.
In FY2018, the logging division contributed 37 percent to the group timber revenue while the other 63 percent came from plywood manufacturing.
“Due to a more conducive weather condition in 2018, the log production volume of 766,000 cubic metres surpassed that of 2017’s production volume of 641,000 cu m, an increase of 19 percent.
“Correspondingly, sales volume to domestic market, inclusive of inter-company sales, was higher at 704,000 cu m (2017: 573,000 cu m).
“On the other hand, its export log sales volume contracted to 30,000 cu m (2017: 84,000 cu m) due to weaker market demand and lower allowable log export quota imposed by the Sarawak state government from 30 percent to 20 percent since July 2017,” added the company.
India accounted for about 96 percent of the group’s log export volume, with the remaining four percent went to Vietnam.
In 2018, WTK’s plywood production dropped to 177,000 cu m from 187,000 in 2017 due mainly to its focus in producing more premium floor-base plywood for the niche market over other general-purpose plywood, thereby resulting in lower production.
Year-on-year, the group has raised the sales volume for floor-base plywood to 49 percent from 42 percent
Japan remained the dominant market for the group’s plywood products, accounting for 87 percent of its export sales, with the remaining 13 percent exported to Taiwan.
The group owns three plywood mills, with a combined annual production capacity of 324,000 cu m.
On outlook in the timber business, WTK said the log segment remains challenging as demand from India is expected to remain soft due mainly to broadly weaker India rupee against the US dollar.
The weak rupee has resulted in Indian importers to significantly reduced their orders or delayed some of their shipments last year.
WTK said the group’s plywood segment continues to face competition from Japanese domestic plywood supply as well as imported plywood from Indonesian into Japanese market.
Consequently, it pointed out that plywood imported into the Japanese market is experiencing downward pressure on the selling price and reduced volume.
“The Japanese trading houses are selective in importing only higher end floor-based plywood as their domestic plywood are able to substitute the general-purpose plywood at lesser costs.
“Given this scenario, the group anticipates demand for its premium floor-base plywood, which is sold to a niche market, will continue to secure orders from its Japanese buyers,” it added.
On reforestation, WTK said the group had planted 8,700 hectares of fast growing commercial trees in out of total net plantable areas designated for tree planting of 38,700 hectares under two licences for planted forests in Sibu and Kapit Division.
“The remaining plantable areas are under disputes with the natives. The group can only commence the planting activities on areas where such disputes have been solved.”
WTK expects first harvest of its forest plantation next year.
The group is also into manufacturing of various adhesive and masking tapes in its plant in Pulau Pinang. The tapes are exported mainly to Australia, China, India, Hong Kong, Thailand and Indonesia.
In FY2018, the manufacturing and trading of the tapes generated about RM67.9 million to group revenue and RM5 million in net profit.
WTK group has cash and bank balances of RM384 million, which was a decrease of RM40 million from 2017 as about RM35 million was used to settle the amount drawn down by its loss-making oil and gas unit, which has since been wound up.
