United Malacca Bhd

United Malacca Bhd CEO, Dr Leong Tat Thim.

United Malacca Bhd (UMB) is a low-profile plantation company with a long and illustrious history.

UMB started as a small rubber growing company with 460 acres in 1910. Its founder member and chairman was the late Tun Tan Cheng Lock, the founder of MCA and recognised as one of the founding fathers of Malaysia, along with Tunku Abdul Rahman, Tun Abdul Razak and Tun VT Sambanthan.

UMB has since grown to become a medium-sized oil palm plantation company with 60,000 acres of oil palm land, of which 17,000 acres is in Peninsular Malaysia and the rest in Sabah.

Headquartered in Melaka, UMB celebrated its 100th anniversary on April 27.  The company has been profitable throughout its 100 years of existence, which it attributes to good corporate governance and financial prudence.

In the following email interview, CEO Dr Leong Tat Thim shares his views on the company’s business, strategies and growth outlook.

TEFD: What are the company’s competitive strengths and advantages?
Leong: Our competitive strength lies in our prudent spending, one of the principles on which the company was founded a century ago and which remains an important part of the operations on every UMB estate. With our prudent approach, there are substantial savings and less wastage, resulting in low production costs.
What have been the achievements of the company in the past four years?
With our expansion in Sabah (through Meridian Plantations) and the acquisition in 2004 of 8,000 acres and an oil mill in Pahang, the company’s staff strength has increased tremendously. To provide more work space, we completed our new eight-storey corporate headquarters in Melaka, in 2007.
The company has done very well in the past four years. Our profits have increased substantially, and our shareholders’ equity is commendable.

Our net profit in 2006 was RM24.1 million. This increased by 196% to RM71.3 million in 2009.  Similarly, we increased shareholders’ equity by 58% in three years, from RM555.9 million in 2006 to RM879.5 million in 2009.

Another significant achievement was the acquisition of a 25,000 acre semi-planted estate in Keningau, Sabah in December 2009.  About half of the 25,000 acre estate was planted with palms of one to five years old, while the balance of the area will be developed by 2013.

With this recent acquisition, our acreage has increased from 35,000 acres to 60,000 acres, making UMB a medium-sized plantation company.

Most significant is the fact that the age profile of the company’s plantations has become more attractive, with significant potential yield increase in the years to come.

More than 93% of palms are below 15 years of age, of which 21% are immature palms, 37% are young mature palms (four to seven years) and 35% are prime palms (eight to 15 years). Only 2% of our trees are old palms that exceed 26 years.

What has been the company’s strategy for expansion? How have these strategies turned out?
Our strategy for expansion is to buy land or estates which are reasonably priced and well-located with fertile soil, well-distributed rainfall, undulating topography and at the right timing. Preference will be for newly developing estates with ongoing planting in progress, where there are existing workers staying on the property and infrastructure has already been established.

In December 2009, we succeeded in acquiring such a property. The property is a contiguous block of 25,000 acres which was 50% planted with one- to five-year-old palms and with development of the balance in progress. There is good infrastructure and the fresh fruit bunches harvested can be easily sold to the two oil mills located nearby.

The timing of this acquisition was also favourable. At current crude palm oil (CPO) prices hovering above RM3,000 per tonne, the value of this property has increased substantially.

How is the company positioning itself within the oil palm industry?
UMB ensures that its productivity is in line with the industry by focusing on increasing oil yield per hectare from the current 4.5 tonnes to five tonnes to more than six tonnes in the next 10 years.
The staff and workers’ salaries and perks reflect, and in some cases surpass, industry standards so as to attract and retain experienced and hardworking employees. In line with this objective, the company is also providing an Employee Share Option Scheme (Esos) to retain and reward good employees.

In 2007, our oil mill in Sabah was given an award by the Malaysian Palm Oil Board for producing the highest oil extraction rate in Sabah.

We are also a caring company, as we frequently donate to charitable organisations and give yearly scholarships to deserving students to pursue their tertiary education.

The core values of integrity, hard work, good corporate governance and financial prudence that were embraced by the founders will continue to be the guiding principles of the company to survive another 100 years.
Did the financial crisis in 2008/09 have any impact on the company?
Despite the severity of the global crisis and its negative impact on commodity prices, our company was very fortunate. Due to our lower production cost, we were able to ride out the storm without any losses and still reported good earnings.

For FY April 2009 , our net profit fell by 26.1% to RM71.34 million from RM96.58 million in FY2008, while earnings per share declined from 72.1 sen to 53.2 sen. Revenue fell 13.3% from RM222.19 million to RM192.65 million as our average CPO selling prices fell from RM2,857 to RM2,420 per tonne.
What are the company’s plans for the future, both short term and long term? What are your company’s plans to compete in the increasingly globalised environment?
For the short term, we will focus on planting up the balance of the newly acquired 25,000 acres of semi-developed land with elite “D x P” oil palms in Keningau, Sabah.

The company’s third oil mill will also be built on this newly acquired estate in two to three years to process the fresh fruit bunches produced in order to get a better oil extraction rate and enhance profits.  Planting of rubber trees in the hilly and drier areas in our estates will help to increase productivity of our existing land area.

For the long term, we intend to acquire more land and diversify into planting rubber trees for latex and sustainable timber, with the aim of broadening our earnings base instead of being solely dependent on palm oil.

In order for the company to compete effectively and successfully in a globalised environment, the company has to produce certified palm oil as the world needs commodities that are sustainable. We will also develop agriculture-related businesses on existing land that is not suitable for oil palm or rubber cultivation.
How would you like to see the company in 10 years?
We foresee that our landholdings will expand to more than 100,000 acres in 10 years.  By then, at least 30% of our planted area should comprise rubber trees, as we foresee that there will be very good demand for latex as well as for sustainable timber. Exploitation of latex will be by “puncture tapping” to overcome the shortage of skilled tappers.  We should also by then have a rubber factory to process the latex produced into SMR20 [standard rubber]. - by The Edge Financial Daily