RAM Ratings has reaffirmed the AAA(fg)/Stable rating of the RM150 million 10-year tranche (2016/2026) under Chellam Plantations Sabah’s RM300 million Guaranteed Sukuk Murabahah Programme (2016/2033). The enhanced rating is premised on the irrevocable and unconditional guarantee extended by Danajamin Nasional (rated AAA/Stable/P1), the company said.
Chellam Plantations is an investment-holding company, with subsidiaries involved in the cultivation of oil palms and the milling of palm oil. Independent of the financial guarantee, its standalone credit profile is constrained by its relatively small planted area of 13,799 ha which can only contribute 30% of its processing capacity. Based on its capacity of 871,200 metric tonnes (MT) per annum, the group depends on processing fresh fruit brunches (FFBs) purchased from third parties in addition to its own FFBs. This strategy allows the group to pursue incremental profits despite thin margins. The Group’s oil extraction rate (OER), which stood at 22% in 2019, remains comparable to those of bigger regional players, RAM Ratings said.
While Chellam Plantations’ FFB output declined to 104,609 MT (4.1%) and 91,351 MT (12.7%) year-on-year in 2019 and 1H20, strong FFB growth momentum is expected in the medium term due to a large proportion of young and prime palms (overall weighted-average age: 11 years). Such palms constituted 77% of its total planted area as at end-December 2019.
Chellam Plantations’ production cost for crude palm oil (CPO) decreased to RM1,512 per MT in fiscal 2019 (fiscal 2018: RM1,650), thanks to lower average cost for external FFB purchases, in line with softer CPO prices. Lighter expenses and a higher mill utilisation rate boosted its operating profit before depreciation, interest, and tax (OPBDIT) and OPBDIT margins to a respective RM51.31 mil and 15.36% in fiscal 2019, despite lower revenue (-6.7%) of RM334.02 million.
"We anticipate Chellam Plantations’ topline to improve in fiscal 2020, underscored by healthier average CPO prices," RAM Ratings said in a statement.
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