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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
27-05-2025
- Business
- New Straits Times
KLK's earnings set to improve as derivatives losses recede, says CIMB Securities
KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) is expected to register a higher second half of (2H) financial year 2025 (FY25) net profit in absence of derivatives losses, said CIMB Securities Research. The research house said KLK lowered its FY25 fresh fruit bunch (FFB) output guidance to mid-single-digit growth but remains positive about 2H prospects, supported by improved production. "This suggests that 2HFY9/25 production could account for about 52 per cent of full-year output, supporting earnings momentum, although this will be partly offset by lower current crude palm oil (CPO) prices," it said. Meanwhile, CIMB Securities said KLK recorded a 2.5 per cent year on year (yoy) decline in ex-mill CPO production costs to RM2,100/tonne in 1HFY25, driven by lower fertiliser prices. However, the firm said refining margins are expected to remain weak, the glove division is still loss-making, and gas supply disruptions have affected oleochemical plant efficiency in third quarter (Q3) FY25. "KLK shared that the RM252 million in derivatives losses in 1HFY25 was mainly related to unrealised US dollar hedges of RM143 million. "We maintain our Hold call with an unchanged target price of RM21.50," it added.
The Star
22-05-2025
- Business
- The Star
KLK quarterly earnings rise 32% to RM154mil
The group expects plantation earnings to remain resilient. PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) posted a 31.8% year-on-year (y-o-y) rise in net profit to RM154.27mil for the second quarter ended March 31, 2025 (2Q25), driven by higher crude palm oil (CPO) and palm kernel (PK) selling prices, which bolstered plantation earnings despite a weak showing in its manufacturing segment. Revenue for the quarter grew 16.2% y-o-y to RM6.34bil, as CPO prices averaged RM4,116 per tonne, up 13.7% from RM3,620 a year ago, while PK surged 70.2% to RM3,265 per tonne. For the first half of its financial year 2025 (1H25), KLK's net profit rose 8.9% y-o-y to RM374.73mil on the back of a 10.7% increase in revenue to RM12.28bil. The group declared a 20 sen interim dividend to be paid on July 29, with the entitlement date set for July 10. The plantation segment remained the primary profit driver, with 2Q25 profit improving to RM454.3mil from RM357.7mil a year earlier, helped by favourable selling prices. Furthermore, this was despite lower CPO and PK sales volumes and a fair value loss of RM53.4mil on unharvested fresh fruit bunches. However, the manufacturing division turned in a pre-tax loss of RM38.3mil versus a RM56.7mil profit in 2Q24, weighed by continued losses in its refinery and kernel crushing operations. KLK's performance was also impacted by a RM63mil share of loss from 27%-owned Synthomer plc and foreign exchange losses totalling RM217mil in 1H25, both of which are non-cash in nature. The group expects plantation earnings to remain resilient, supported by the upcoming high crop season and cost management amid expectations that CPO prices will trade between RM3,800 and RM4,200 per tonne. 'Given the challenging macroeconomic outlook and increased volatility in commodity markets following recent tariff developments, the group adopts a prudent stance in navigating the remainder of financial year 2025,' it noted. Meanwhile, KLK's major shareholder Batu Kawan Bhd saw its net profit rise 3.7% y-o-y to RM87.89mil in 2Q25, while revenue climbed 15% to RM6.51bil. For the first half, net profit rose 9.7% to RM215.48mil, while revenue increased 9.9% to RM12.63bil. Additionally, Batu Kawan's plantation segment delivered a 41% jump in profit to RM1.05bil in 1H25, underpinned by stronger CPO and PK prices, which helped offset lower fresh fruit bunch yields and extraction rates caused by adverse weather conditions.
The Star
22-05-2025
- Business
- The Star
KLK records higher earnings in 2Q25
PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) posted a 31.8% year-on-year (y-o-y) rise in net profit to RM154.27mil for the second quarter ended March 31, 2025 (2Q25), driven by higher crude palm oil (CPO) and palm kernel (PK) selling prices, which bolstered plantation earnings despite a weak showing in its manufacturing segment. Revenue for the quarter grew 16.2% y-o-y to RM6.34bil, as CPO prices averaged RM4,116 per tonne, up 13.7% from RM3,620 a year ago, while PK surged 70.2% to RM3,265 per tonne. For the first half of its financial year 2025 (1H25), KLK's net profit rose 8.9% y-o-y to RM374.73mil on the back of a 10.7% increase in revenue to RM12.28bil. The group declared a 20 sen interim dividend to be paid on July 29, with the entitlement date set for July 10. The plantation segment remained the primary profit driver, with 2Q25 profit improving to RM454.3mil from RM357.7mil a year earlier, helped by favourable selling prices. This was despite lower CPO and PK sales volumes and a fair value loss of RM53.4mil on unharvested fresh fruit bunches. However, the manufacturing division turned in a pre-tax loss of RM38.3mil versus a RM56.7mil profit in 2Q24, weighed by continued losses in its refinery and kernel crushing operations. KLK's performance was also impacted by a RM63mil share of loss from 27%-owned Synthomer plc and foreign exchange losses totalling RM217mil in 1H25, both of which are non-cash in nature. The group expects plantation earnings to remain resilient, supported by the upcoming high crop season and cost management amid expectations that CPO prices will trade between RM3,800 and RM4,200 per tonne. 'Given the challenging macroeconomic outlook and increased volatility in commodity markets following recent tariff developments, the group adopts a prudent stance in navigating the remainder of FY25,' it noted. Meanwhile, KLK's major shareholder Batu Kawan Bhd , saw its net profit rise 3.7% y-o-y to RM87.89mil in 2Q25, while revenue climbed 15% to RM6.51bil. For the first half, net profit rose 9.7% to RM215.48mil, while revenue increased 9.9% to RM12.63bil. Batu Kawan's plantation segment delivered a 41% jump in profit to RM1.05bil in 1H25, underpinned by stronger CPO and PK prices, which helped offset lower fresh fruit bunch yields and extraction rates caused by adverse weather conditions.
New Straits Times
22-05-2025
- Business
- New Straits Times
KL Kepong logs in higher net profit of RM154.27mil in Q2
KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KL Kepong) posted a 31.8 per cent jump in net profit to RM154.27 million for its second financial quarter ended March 31, 2025 from RM117.07 million a year ago, on improved plantation profit. KL Kepong's revenue rose 16.2 per cent to RM6.34 billion from RM5.46 billion a year earlier. The company declared an interim dividend of 20 sen per share for the financial year ending Sept 30, 2025 payable on July 29. KL Kepong said plantation profit improved to RM454.3 million in Q2 from RM357.7 million in the same quarter in 2024. This was largely due to higher average selling prices of crude palm oil (CPO) and palm kernel. Its manufacturing segment suffered a loss of RM38.3 million against the profit of RM56.7 million in Q2 FY2024. This was dragged down by losses from the non-oleochemical division, refineries and kernel crushing operations. Its property segment's profit dropped 53.6 per cent to RM3.5 million from RM7.6 million a year earlier. For the cumulative six months, the company's net profit rose 8.9 per cent to RM374.73 million from RM344.01 million previously. Its revenue grew 10.7 per cent to RM12.28 billion from RM11.09 billion. KL Kepong executive chairman Tan Sri Lee Oi Hian said despite the volatile external environment, its plantation division had continued to deliver strong results. "We anticipate production to improve in the second half of 2025, though fluctuations in CPO prices and external demand remain key uncertainties. "Our oleochemical sub-segment's recovery remains encouraging, and we are closely managing challenges in the refining business. "Moving forward, we remain watchful, focusing on operational efficiency, long-term value creation and sustainability," he said in a statement. As of September 2024, KLK had about 300,000 hectares of planted area.
