KUALA LUMPUR (April 30): MKH Oil Palm (East Kalimantan) Bhd (MKHOP), fresh off its Main Market debut on Tuesday, is anticipating a reduction of fertiliser costs this year, which will have a positive impact on the company's margins and its bottomline.

"The key focus is on cost reduction and achieving higher yields. We must not rely solely on weather conditions," said MKHOP chairman Tan Sri Chen Kooi Chiew @ Cheng Ngi Chong on Tuesday.

The East Kalimantan-based upstream oil palm plantation group's net profit for its financial year ended Sept 30, 2023 (FY2023) dropped 45% to RM30.4 million from RM55.5 million in FY2022 on higher operating costs, despite revenue increasing to RM338 million from RM315.8 million, on stronger sales from Indonesia.

The company’s net profit margin has declined for the past three consecutive years, from 23.5% in FY2021 to 17.6% in FY2022 and further to 9% in FY2023.

Meanwhile, the group has no plans to undertake any replanting exercise in the next few years, as about 94.9% of the group's total planted area comprises oil palms around the prime mature ages of 10 to 16, while the remaining are set to reach peak production soon. This means uninterrupted oil production is guaranteed, according to MKHOP.

“There are no replanting exercises in the next few years. In Indonesia, where we operate right now, we do not see the need for such exercise,” said MKHOP executive director Andy Lee.

"But it is a different situation in Malaysia. As palm trees mature, harvesting requires skilled labour, yet the country still faces a labour shortage," he told reporters following MKHOP’s listing on Bursa Malaysia’s Main Market.

As the majority of MKHOP’s oil palm trees are at a prime mature stage, the company’s average fresh fruit bunches (FFB) yield rose to 24.1 tonnes per hectare in FY2023 from 23.2 tonnes per hectare in FY2022.

On the impact of El Nino on its palm oil production, Lee said it will be minimal, due to the company’s measures to maintain sufficient water levels within its plantation estates.

“In MKHOP, we use stoppers, basically local soil, built into our drains to ensure that we have enough water inside our estates. We have been practising this for many years and have observed that during El Nino periods, our crop is less affected compared to the rest of the plantation industry.

“But we do witness an upward trend in CPO [crude palm oil] prices as the [plantation] industry is affected by the weather conditions. If CPO prices go up, that means we can maximise our revenue further,” he added, without giving any forecast on average CPO prices.