Ecofirst mulls venture into plantations

SUBANG JAYA: Ecofirst Consolidated Bhd is considering oil palm plantations in Indonesia as part of its future growth strategy.

CEO and executive director Datuk Tiong Kwing Hee said the group — with a diverse portfolio in property development and investment, construction and mining — may consider acquiring established or new plantation tracts within Indonesia’s Kalimantan, Sumatra or Java enclaves.

However, it is not a top priority at the moment. “It may happen or may not happen,” Tiong told The Edge Financial Daily after Ecofirst AGM yesterday.

He said the planned plantation venture will come “last” as it will be a capital-intensive business. Hence, the immediate priority is still property development, which has a faster turnaround time to generate the necessary cash flow to potentially finance the plantation aspiration.

Tiong said should Ecofirst acquire brownfield plantation assets or planted tracts, it may finance the purchase with cash and shares. This is to prevent Ecofirst from stretching its balance sheet further, he said. “Greenfield is cheaper. But in general, we need deep pockets to venture into plantations.”
Ecofirst’s substantial shareholders as at Sept 30 include Teoh Seng Kian (12.44%), Teoh Seng Aun (10.81%) and Purewise Sdn Bhd (7.4%).
Tiong: We need deep pockets to venture into plantations.

The group’s intention to venture into oil palm plantation in Indonesia coincides with its plans to expand its mining operations there.

According to Tiong, Ecofirst which has existing iron ore mining operations in Kalimantan, plans to acquire more iron ore mines or tracts with other mineral reserves in Indonesia. He said the group could spend US$10 million (RM31.9 million) on each mine, including the cost of setting up a processing plant and other infrastructure.

In August 2010, Ecofirst signed a cooperation agreement with Indonesia-based CV Geo Mineral Resources (CV GMR) to undertake iron ore mining within Kalimantan’s Tanah Laut Regency enclave. Under the deal, CV GMR agreed to share 60% of the iron produced with Ecofirst.

“The prospects are very good,” Tiong said. This takes into account the cost of extracting, processing and transporting iron ore at US$50 a tonne in Indonesia where the commodity is traded at US$100 a tonne.

On the existing JV with CV GMR, Tiong said Ecofirst had forked out RM4 million to undertake mining operations in Kalimantan. He said the processing plant has been commissioned and the facility is undergoing tests. The plant is scheduled to begin operations during the financial year ending May 31, 2013 with an annual capacity of 500 tonnes for a start.

Tiong expects Ecofirst to register a higher net profit in the current year ending May 31, 2012, helped mainly by its property division.

Other than development activities, Ecofirst’s property division includes two retail malls — 1Segamat in Segamat, Johor and South City Plaza in Seri Kembangan, Selangor. Rentals from both malls will form a major source of recurring income for the group.

Tiong said the group, which develops properties in Ipoh, may also consider other parts of the country. He did not elaborate, only indicating that the company is looking at a gross profit of RM20 million to RM 30 million for each property project.

Despite Ecofirst having turned around its fortunes, Tiong said the group has no immediate plans to declare dividends as it needs the cash flow to sustain its earnings momentum.

“But I will still consider rewarding shareholders with dividends,” he said, adding that Ecofirst also has no immediate fundraising plans.

Ecofirst’s latest financials have improved. It posted a net profit of RM2.03 million or 0.31 sen per share in the first quarter ended Aug 31 this year versus a net loss of RM2.12 million a year ago, helped by income from its property division. Group revenue more than doubled to RM14.92 million from RM6.03 million previously.

Under Tiong’s stewardship, Ecofirst has leapt into the black with a net profit of RM8.8 million in the financial year ended May 31, 2011. This followed net losses in the preceding four fiscal years.

Tiong recalled it was tough when he assumed the CEO post in January 2009 as he did not know where to start on rejuvenating the group.

A crucial concern then was that the group’s operations could not sustain its debt level, which prompted Tiong to reorganise the borrowings in which loans from some lenders were fully settled while credit lines from two other banks were restructured.

“I have frozen all the borrowings of Ecofirst,” he said, indicating that cost planning and cost cutting would be crucial to rebuild the group’s financials.

As at Aug 31, Ecofirst had a net debt of RM129.94 million, which translated into a net gearing of 1.1 times based on its shareholders’ funds of RM119.4 million.

The stock closed at 18.5 sen yesterday, giving it a market value of RM120.3 million.