Business Times

Wednesday, June 25, 2008

By Ooi Tee Ching

When there’s economies of scale in plantation area, Hap Seng Consolidated can put up a mill, says its group managing director

HAP Seng Consolidated Bhd is keen to expand its oil palm plantations into Kota Marudu, Sabah, and buy more quarries in Peninsular Malaysia.

Two weeks ago, Hap Seng told the stock exchange that it was buying 727ha of oil palm estate from Bumilaju Construction Sdn Bhd for RM42 million while assuming Bumilaju’s RM15 million liability.

“This is a small buy but a good start. We’re keen to acquire more oil palm land in that area. If and when there’s economies of scale in plantation area, we can put up a mill,” said group managing director Edward Lee Ming Foo.

Bumilaju’s oil palm trees are around seven years old. They are at their prime age of fruit bearing and crude palm oil prices are trading at good prices, he told reporters after the company’s shareholder meeting in Kuala Lumpur yesterday.

“Once the deal is completed, we should see immediate contribution before the year-end,” he added.

Hap Seng is Malaysia’s biggest fertiliser company by sales and last year it sold more at better profit margins. The group sells its fertiliser in straights format under the Sasco brandname.

“Clients could accept higher fertiliser prices because they were benefiting from high palm oil prices,” said executive director and group chief financial officer Soon Seong Keat.

“We think oil palm plantations in Indonesia are likely to order more fertilisers than Malaysia, judging from the rapid growth there,” he added.

Hap Seng operates four quarries in Kota Kinabalu, Tawau, Marang and Kuantan. Its asphalt plants are in Chukai and Kuantan.

Lee said building material prices have been escalating as crude oil in the international market have risen to record levels of between US$130 and US$140 per barrel (RM425.10 and RM457.80). “Prices of asphalt and aggregates are expected to go up further,” he said.

Hap Seng holds the Mercedes-Benz dealership in Klang Valley and exclusively throughout Sabah and Sarawak. Last year, it sold 54 per cent more Mercedes-Benz passenger cars in Klang Valley but less logging trucks of the same badge in Sarawak.

This year, Lee said, the group expects to sell more light and medium Mercedes-Benz trucks for use in oil palm plantations and construction sites.

“We expect higher demand for the lighter weight trucks in view of more investments in making plantation activities more efficient and roll out of construction projects in Sabah,” he said.

Asked if the government’s recent raising of fuel prices had affected sales of Mercedes-Benz passenger cars, deputy managing director Lee Wee Yong replied: “People who buy Mercedes-Benz are usually driven by the heart, not the head. But then again, among luxury cars, Mercedes-Benz is considered very fuel-efficient. A few government bodies in Sabah buy our cars.”

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