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The Star
4 days ago
- Business
- The Star
Industry consolidation the next chapter of oil palm?
THE Malaysian plantation sector – long a cornerstone of the nation's economy and rural livelihood – is undergoing a defining transformation. Confronted by rising production costs, chronic labour shortages, sustainability pressures, and ageing oil palm estates, the industry is nearing a critical inflection point. Business-as-usual is no longer viable. In this changing landscape, consolidation is becoming not just possible but necessary. A once-fragmented industry built on legacy models must evolve into a more integrated, efficient, and resilient ecosystem to stay competitive globally. The question is no longer if consolidation will happen, but how soon and who will lead it. Larger publicly listed plantation companies – with scale, capital access, and professional managemen – are better positioned to adapt and thrive. In contrast, smallholders and mid-sized estates face rising vulnerabilities that threaten their long-term viability. Rather than a threat to diversity, consolidation should be viewed as a strategic evolution – promoting efficiency, best practices, and the sector's future. While its pace and form may vary, consolidation now appears inevitable. Ultimately, this shift will be driven by the commercial choices of individual owners in a business-to-busines-driven landscape. Growing divide in succession and scale A major challenge facing the sector is the generational transition of estate ownership and management. Leading plantation companies like Kuala Lumpur Kepong Bhd , IOI Corp Bhd , Genting Plantations Bhd , Kim Loong Resources Bhd , J.C. Chang Group, Hap Seng Plantations Bhd and Teck Guan Holdings Bhd are largely institutionalised. They have corporate governance, professional management, and financial capacity to invest in sustainability and innovation. Though still anchored by founding families, these firms have evolved into professionally run conglomerates better equipped to handle global demands. In contrast, hundreds of smaller and mid-sized estates – ranging from 100 to a few thousand acres – face stagnation. Often family-owned and passed down through generations, many now struggle with succession. Younger heirs often lack the interest or capability to manage these assets, leading to operational fragmentation, underinvestment, and in some cases, neglect or forced liquidation. These estates also face structural disadvantages. Unlike integrated firms with their own mills and pricing control, smaller players rely on third-party dealers and processors. This dependence reduces their bargaining power, increases price vulnerability, and often results in lower returns. The consequences go beyond business. The oil palm sector is vital to Malaysia's rural economy, especially in Sabah and Sarawak. The decline of mid-tier estates threatens not only productivity but also local jobs and community development. What seems like a succession issue is, in fact, a broader regional and national concern. Economics of consolidation Consolidation presents a strong economic case for boosting productivity. Larger plantation companies are incentivised to acquire or manage smaller, nearby estates to gain scale efficiencies. Integration allows for streamlined operations, shared resources, improved logistics, and better mechanisation – particularly in in-field crop evacuation – advantages often out of reach for smaller players. Many smallholders can't afford replanting costs, which can exceed RM30,000 per hectare, with no revenue during the immature phase. This leads to ageing palms, declining yields, and lower profitability. In contrast, well-capitalised firms can invest in replanting, using high-yielding varieties and precision agriculture to rejuvenate estates and boost output. Revisiting the agency model A promising path for industry consolidation is the revival and modernisation of the estate agency model, once common in Malaysia. Historically, firms like Taiko Plantations and Plantation Agencies Ltd managed estates for absentee or passive landowners, who retained ownership while benefiting from professional oversight and steady income. Today, this model could be reimagined. Larger plantation companies could enter structured management agreements with smaller estate owners, offering agronomic expertise, mechanisation, replanting investment, and market access. In return, profit-sharing or fixed-return contracts would provide landowners with reliable income while improving land productivity and sustainability. For success, the agreements must be transparent, fair, legally sound, and scalable. Pilot projects and early adopters can serve as proof of concept, building trust and offering templates for broader adoption. Such partnerships preserve land ownership for families and cooperatives while unlocking the potential of underperforming estates through professional management. This approach benefits both sides: landowners avoid operational burdens but retain income, while companies grow managed acreage without owning land – helpful amid tighter land acquisition rules and community sensitivities. In a context where land carries deep personal and cultural value, this collaborative model offers a sustainable and productive future for Malaysia's plantation sector. Cooperative potential for smallholdings For smallholders, consolidation doesn't have to mean giving up land – it can come through strategic collaboration via cooperatives or clusters. Larger plantation companies can engage with these groups, especially in areas adjacent to their operations, enabling contiguous expansion, operational synergies, and reduced logistical inefficiencies. Shared use of infrastructure – such as mills, machinery, transport and advisory services – offers mutual benefits. Smallholders gain professional management, better pricing, and technical support, while companies expand their effective land base and achieve scale without acquiring land. Direct engagement with individual smallholders is often complex due to land fragmentation, heir disagreements, and varying agricultural expertise. Structured cooperatives or multi-family clusters provide a more scalable alternative, enabling collective decision-making and standardised practices across plots. The success of such partnerships depends on transparent, equitable, and enforceable agreements that align landowners' interests with agronomic best practices and sustainability goals. The biggest challenge is the human factor – building consensus among diverse landowners across generations and motivations. Convincing both traditional elders and disengaged heirs to align under a shared vision is difficult, especially with political sensitivities and varying trust levels. Still, if handled inclusively and strategically, this model could revitalise smallholder participation – transforming fragmented plots into productive, professionally managed, and resilient assets within Malaysia's plantation sector. Sustainability is a licence to operate Consolidation supports compliance with standards like Malaysian Sustainable Palm Oil, Roundtable on Sustainable Palm Oil and European Union deforestation regulation, especially as traceability requirements grow. Larger firms are better positioned to meet labour, environmental, and reporting benchmarks, while smaller operators often lack the resources and expertise to keep up. Consolidation also aligns with the government's goal of sustainable intensification – boosting productivity without expanding agricultural land. As concerns over deforestation, biodiversity loss and carbon emissions increase, the focus must shift from organic expansion to optimising existing estates. Pooling fragmented, underperforming small and mid-sized estates into larger, professionally managed units enables higher yields, better resource use, and stronger sustainability compliance. Consolidated estates benefit from modern practices and consistent management, raising productivity without harming the environment. In this context, consolidation becomes both a commercial and policy-driven necessity for Malaysia's commodity future. Conclusion: An inevitable evolution Consolidation is not a distant possibility – it is fast becoming reality, driven by demographic shifts, economics and sustainability. For smaller estates, the choice may soon be between slow decline or joining forces through strategic partnerships. Policymakers and larger firms must help shape a fair and inclusive consolidation framework. Reviving estate management models, incentivising cooperatives, and enabling profit-sharing can build a more resilient industry. Thoughtfully pursued, consolidation offers a new lease on life for smaller players within a more efficient and sustainable system. The question is urgent: Are we doing enough to secure the future of Malaysia's oil palm sector? Without unified action, the industry risks quiet decline. This is not alarmism – it's a clear call for decisive and collective reform. Joseph Tek Choon Yee has over 30 years of experience in the plantation industry, with a strong background in oil palm research and development, executive leadership and industry advocacy. The views expressed here are the writer's own.
New Straits Times
29-05-2025
- Business
- New Straits Times
Genting Q1 profit on track despite one-off charges
KUALA LUMPUR: Genting Plantations Bhd's core net profit of RM121 million in the first quarter (Q1) 2025 met expectations, accounting for 39 per cent and 38 per cent of CIMB Securities Research's and Bloomberg consensus full-year estimates, respectively. The research house considers this to be in line with expectations, as it expects weaker earnings in the coming quarters for Genting Plantation due to lower crude palm oil (CPO) prices and higher production costs. Reported net profit, however, the firm said, came in significantly lower at RM61 million, mainly due to RM72 million in impairment charges. "Of this, RM66 million was related to the provision for potential income loss from some parts of its Indonesian planted estates that have been demarcated as forest land by the Indonesian government under a recent regulation. "No dividend was declared in Q1 2025, in line with expectations," it said. Meanwhile, CIMB Securities said the negative surprise this quarter was a RM66 million impairment on Genting Plantation's Indonesian bearer plants, arising from the likely reclassification of some parts of its mature oil palm estates as forest land by the Indonesian government. The firm has maintained its Hold rating but lowered its target price to RM5.28 per share, applying a higher 20 per cent discount (from 15 per cent) to its sum-of-parts (SOP) valuation to reflect growing regulatory risks in Indonesia. "The higher discount reflects increasing regulatory risks in Indonesia, where 57 per cent of Genting Plantation's planted estates are located. "It also captures our earlier concerns about Genting Plantation's proposed RM676 million acquisition of two land parcels (totalling 152 ha) in Jakarta for property development — a segment in which the company has no prior track record in Indonesia, posing execution risks," it said. On a positive note, CIMB Securities said Genting Plantation recently completed the sale of 213.9 hectares of land in Mukim Paya Rumput, Melaka, to Scientex for RM333.8 million. The transaction, completed on 21 May, will allow Genting Plantation to recognise a one-off net gain of RM284.9 million, it added.
The Star
28-05-2025
- Business
- The Star
Genting Plantations posts higher 1Q net profit of RM61.25mil
KUALA LUMPUR: Genting Plantations Bhd posted a higher net profit of RM61.25 million in the first quarter ended March 31, 2025 (1Q 2025) compared to RM42.83 million in the same period last year. Revenue also increased by 19 per cent to RM719.45 million from RM605.83 million previously, attributable to higher palm product prices and improved sales volume in the downstream manufacturing segment. In a Bursa Malaysia filing, Genting Plantations said fresh fruit bunch (FFB) production in 1Q 2025 saw a year-on-year decline, primarily due to disruptions caused by unusually heavy rainfall and flooding across several estates in Malaysia. "The impact was partially offset by stronger output from the group's Indonesian estates, supported by a favourable age profile," it said. Genting Plantations also reported higher crude palm oil and palm kernel prices of RM4,162 per tonne and RM3,311 per tonne, respectively. "Reflective of the higher palm products selling prices, 1Q 2025 earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the Plantation segment increased year-on-year on top of the increased sales volume during the quarter," it said. Meanwhile, Genting Plantations said the group's prospects for the remainder of the year will track the performance of its mainstay plantation segment, which is, in turn, dependent on movements in palm product prices and FFB production. It said palm oil prices have since eased, driven by the seasonal recovery in production and the expected buildup in palm oil stocks. "However, the group anticipates prices to stabilise in the near term, supported by purchases from key importing countries following the recent palm oil price correction. "Nonetheless, escalating trade tensions and subdued crude oil prices may add to price volatility," it added. - Bernama
New Straits Times
28-05-2025
- Business
- New Straits Times
Genting Plantations posts higher 1Q net profit of RM61.25mil
KUALA LUMPUR: Genting Plantations Bhd posted a higher net profit of RM61.25 million in the first quarter ended March 31, 2025 (1Q 2025) compared to RM42.83 million in the same period last year. Revenue also increased by 19 per cent to RM719.45 million from RM605.83 million previously, attributable to higher palm product prices and improved sales volume in the downstream manufacturing segment. In a Bursa Malaysia filing, Genting Plantations said fresh fruit bunch (FFB) production in 1Q 2025 saw a year-on-year decline, primarily due to disruptions caused by unusually heavy rainfall and flooding across several estates in Malaysia. "The impact was partially offset by stronger output from the group's Indonesian estates, supported by a favourable age profile," it said. Genting Plantations also reported higher crude palm oil and palm kernel prices of RM4,162 per tonne and RM3,311 per tonne, respectively. "Reflective of the higher palm products selling prices, 1Q 2025 earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the Plantation segment increased year-on-year on top of the increased sales volume during the quarter," it said. Meanwhile, Genting Plantations said the group's prospects for the remainder of the year will track the performance of its mainstay plantation segment, which is, in turn, dependent on movements in palm product prices and FFB production. It said palm oil prices have since eased, driven by the seasonal recovery in production and the expected buildup in palm oil stocks. "However, the group anticipates prices to stabilise in the near term, supported by purchases from key importing countries following the recent palm oil price correction. "Nonetheless, escalating trade tensions and subdued crude oil prices may add to price volatility," it added. -- BERNAMA
