MKH Oil Palm expects Indonesian refineries to take up all of its palm oil

MKH Oil Palm (East Kalimantan) Bhd, which launched its initial public offering (IPO) on Friday for the Main Market, expects almost all of its crude palm oil to be taken up by Indonesian refineries amid the government’s push for biofuel.

In Indonesia, where the government has mandated 35% blend of palm oil into diesel, the company is planning to acquire another 5,000 hectares of land in East Kalimantan by the second quarter of 2024. MKH Oil Palm currently owns more than 18,000 hectares of plantation estates, mostly in Indonesia.

Nearly 95% of its  trees are in the prime producing ages of 10 to 16, and it would take “another eight to ten years before the replanting exercise is necessary,” executive director Datuk Andy Lee Khee Meng told the press after the prospectus launch.

Under Indonesia’s so-called B35 programme, 35% of the biodiesel will be blended with palm-based methyl ester with traditional petroleum diesel for sale at retail pumps nationwide.

The B35 policy will increase the demand for crude palm oil amid a campaign in Europe against edible oil used in everything from lipstick to chocolate.

“Crude palm oil is the most productive, cheapest source for edible oil,” Lee said. “As the population of the world increases, we definitely need more crude palm oil in the market,” he said while recommending that the government provide more land for responsible planters.

MKH Palm Oil also plans to set up a palm kernel crushing facility to extract and process palm kernel into crude palm kernel oil and palm kernel expeller as an additional revenue stream. Sale of palm kernel made up 8% of its total revenue of RM338 million in the financial year ended Sep 2023 (FY2023), according to its prospectus.

MKH Oil Palm’s IPO comprises a public issuance of 220 million new ordinary shares, which represent 21.5% of its enlarged share capital, as well as an offer for sale of 30.7% million existing shares, which represent 3% of the enlarged share capital.

Priced at 62 sen per share, the stock is valued more than 20 times its FY2023’s earnings of RM30.4 million. The company intends to distribute a dividend of at least 50% of its annual net profit.

Annual revenue stood at RM338 million in FY2023, up from RM315.8 million in FY2022. However, its net profit decreased by 45% from RM55.5 million in FY2022, primarily due to higher operating costs.

Upon listing, Metro Kajang (Oversea) Sdn Bhd will hold 30.7% direct interest, while MKH Bhd will control 28.7% direct interest in MKH Palm Oil.

The common shareholders of these two companies include Tan Sri Alex Chen, who will hold 66.6% indirect interest in MKH Palm Oil after the listing exercise, Tan Sri Eddy Chen with 66.5% indirect interest and Datuk Chen Fook Wah with 66.4% indirect interest.

Applications for the IPO will close on April 16, 2024, while the listing date is set for April 30.

M&A Securities is the principal adviser, managing underwriter, joint underwriter and joint placement agent for the IPO. Kenanga Investment Bank Bhd is the joint underwriter and joint placement agent, while AmInvestment Bank Bhd is also the joint placement agent for the IPO.