- Recently, the Jakarta Post quoted Indonesia’s Deputy Agriculture Minister as saying that the country’s revised regulation on plantation permits will be announced in late-April 2013 and take effect in May.

- The Deputy Minister said that the cap on landbank ownership would not affect existing plantation areas that have already exceeded 100,000ha.

- The Agriculture Ministry is currently revising the 2007 Ministerial Regulation on Plantation Permits, which will limit the total plantation area a company can own to 100,000ha.

- The Indonesian Palm Oil Association (GAPKI) is strongly opposing the government’s plan, saying that the measure will severely curb the expansion of the palm oil industry.

- Presently, there are regulations stating that a single company cannot own more than 100,000ha and more than 20,000ha of land with Hak Izin Lokasi. We believe that the cap on 100,000ha has not been strictly enforced.

- What is unclear is whether the cap on the 100,000ha of land ownership would cover subsidiaries or a group of companies in the future. If the cap were to be imposed on a group basis, then there is a possibility that plantation companies would not be able to expand their landbank.

- This is not positive for plantation companies as it would limit their growth but in the longterm, it is favourable for CPO prices as the supply of palm oil would decline.

- If the cap on landbank ownership were to be enforced on a group basis, then this would mean that the companies’ production growth would be driven by an increase in mature areas resulting from new plantings. If the landbank is fully planted, then there would not be any expansion in mature areas anymore.

- Most of the plantation companies under our coverage have large portions of unplanted areas in Indonesia. Out of Genting Plantation’s 162,741ha of landbank in Indonesia, about 64% is still unplanted.

- The proportion of Kuala Lumpur Kepong’s unplanted area in Indonesia is roughly 32%. We estimate TSH’s unplanted areas at 70,000ha or 70% of total landbank in Indonesia. IJM Plantations has about 49,000ha of unplanted area, which is almost 68% of the group’s landbank in Indonesia.

- It has to be noted that actual plantable area would be smaller due to plasma plantings, infrastructure and forest reserves.

Source: AmeSecurities