Published on 02 Oct 2020.
RAM Ratings has reaffirmed the AAA(fg)/Stable rating of the RM150 million 10-year tranche (2016/2026) under Chellam Plantations (Sabah) Sdn Bhd’s (Chellam Plantations of the Group) RM300 million Guaranteed Sukuk Murabahah Programme (2016/2033). The enhanced rating is premised on the irrevocable and unconditional guarantee extended by Danajamin Nasional Berhad (rated AAA/Stable/P1).
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 stand-alone credit profile is constrained by its relatively small-size, with a planted area of 13,799 ha.
Based on its sizeable milling capacity of 871,200 MT per annum, the Group depends on fresh fruit brunches (FFB) purchased from third parties as its own crops only accounted for 30% of FFB processed in 1H 2020. Its large milling capacity represents the Group’s strategy to pursue incremental profits from processing external FFB despite thin margins. The Group’s oil extraction rate (OER), which stood at 22% in 2019, remains commendable and comparable to those of bigger regional players.
Affected by physiological palm stress, Chellam Plantations’ FFB output declined a respective 4.1% and 12.7% y-o-y to 104,609 MT and 91,351 MT in 2019 and 1H 2020. This was after having achieved consistently robust production growth since 2016 (2017: +41%; 2018: +44%). Going forward, the Group is anticipated to resume its strong FFB growth momentum in the medium term. This will be backed by its large proportion of young and prime palms (overall weighted-average age: 11 years), which constituted some 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 margin to a respective RM51.31 mil and 15.36% in fiscal 2019, despite a poorer revenue (-6.7%) of RM334.02 mil. We anticipate Chellam Plantations’ topline to improve in fiscal 2020, underscored by healthier average CPO prices.
The Group’s debt level stayed relatively unchanged at RM343.91 mil as at end-FY Dec 2019 (end-FY Dec 2018: RM344.84 mil), with a gearing ratio of 0.66 times (end-FY Dec 2018: 0.68 times). The ratio eased further to 0.63 at end-June 2020, following some debt repayment. Looking ahead, Chellam Plantations’ gearing ratio is envisaged to moderate to below 0.60 times over the next two years as its settles more borrowings. The Group’s FFO debt cover kept stagnant at about 0.12 times in fiscal 2019 and 1H fiscal 2020 (fiscal 2018: 0.12). Supported by increasing FFB production, this should improve to 0.15 times in the medium term on the back of rising FFB output.
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Ratings on Chellam Plantations (Sabah) Sdn Bhd