At a time when most IPOs have fallen below their offer price upon debut, Kencana Agri (KA) has bucked the trend to close with a 16.4% gain at $0.355 on its first day of trading (July 25). KA was listed at $0.305 each. Would this serve as a courage booster for IPO applicants who have lodged their prospectuses with the MAS but are delaying the actual launch in view of the generally negative market sentiments? Probably only if they are in the same or a similar business as KA, I suppose.

KA is a fast-growing producer of crude palm oil (CPO) and crude palm kernel oil (CPKO)
in Indonesia, with oil palm plantations strategically located in the Sumatra and Kalimantan regions, where climatic conditions are conducive for the planting of oil palms. KA aims to be a leading palm oil producer and supplier of choice for the local Indonesian and international markets. The company has successfully grown its land bank from 9,000 hectares in 1995 to 107,782 hectares as at 2 June 2008.

AN INTEGRATED PLAYER

KA’s integrated plantation operations comprise plantations, palm oil mills, kernel crushing plants, bulking facilities and logistics services, as well as a renewable biomass power plant to support and complement its plantation operations. The company’s integrated value-chain results in operational synergies.

One of KA’s competitive strengths is its significant cultivatable land bank with new planting potential. The company plans to increase its planted area from 24,349 hectares as at 02 June 2008 to over 80,000 hectares in the next five years.

The company stands to benefit from its maturing oil palms in the near future. As at June 2008, about 50% of KA’s planted area is immature. KA expects the majority of these immature plants to mature from 2009 to 2010, thus helping to increase its fresh fruit bunch (FFB) harvests, reduce its reliance on third party suppliers, lower its unit production cost and improve its average CPO extraction rates.

KA has a proven and recognised track record in plantation cultivation and management as demonstrated by the successful cultivation of all its current plantations from greenfield land.

STERLING RESULTS

As testament of the company’s good performance, its revenue grew at a compound annual growth rate (CAGR) of 38.74% from FY05’s US$36.6m to FY07’s US$69.3m while its results grew from a US$7m net loss in FY05 to a US$39.2m net profit in FY07.

KA has received recognition from the provincial governments in the Sumatra and Kalimantan
regions based on its management and administration of the Plasma Program which develops surrounding small landholders’ plantations and assist in harvesting and production of FFB, such that the plantation owners benefit socially and economically with increasing incomes and better welfare such as training and education in oil palm cultivation.

KA plans to expand its oil palm plantation business as it continues working towards meeting the increasing demand for palm oil. Palm oil consumption registered the highest CAGR of 8.3% amongst the vegetable oils for the past 10 years ended 2007. Prices of palm oil have increased substantially in tandem with growing market demand.