SGRO counts on domestic market for growth

JAKARTA. Publicly listed plantation firm PT Sampoerna Agro (SGRO) says domestic demand for crude palm oil (CPO) will dominate the company’s sales for the year as external demand may be weakening against the backdrop of the global economic slowdown.

Domestic sales of Sampoerna Agro’s CPO would dominate up to 85 percent of its total sales, compared with the current share of 78 percent, investor relations head Michael Kesuma said on Monday.

“Considering a surging demand from domestic market, we are eager to boost domestic sales to between 80 and 85 percent,” he stated after the company’s stakeholders meeting.

Sampoerna Agro implemented the strategy after CPO prices have been under pressure from weakening global demand.

The company sold CPO at average price of Rp 7,676 (82 US cents) per kilogram in the first three months of this year, 12 percent lower than in the same period of last year.

Lower selling prices have caused Sampoerna Agro’s revenues to drop to Rp 683.52 billion in the January-March quarter, an almost 10 percent drop from the same period of 2011.

CPO and other palm oil products, which are produced in South Sumatra, West Kalimantan and Central Kalimantan, account for more than 90 percent of the company’s revenues.

In an effort to boost palm oil sales, particularly in the domestic market, Sampoerna Agro has acquired 40,000 hectares of land, to be set up as a palm oil factory in the second semester of this year.

“We brought 40,000 hectares in West Kalimantan in the first and second quarters of this year,” Michael said, adding that there were possibilities for the company to procure more land.

Michael declined to disclose the transaction’s value, but estimated that land categorized as “green field” would cost below Rp 5 million per hectare.

“Since the land procurement was not included in capital expenditures, we used internal cash for it,” he explained.

“However, if we need more funds, there are several banks that are willing to provide us loan facilities,” Michael added, mentioning Bank Mandiri, Bank Rakyat Indonesia (BRI) and Bank DBS Indonesia.

Sampoerna Agro owned 200,000 hectares of land as of March this year.

The company’s production was currently supported by 78,500 hectares of productive land out of 109,000 hectares of cultivated land.

The upcoming plant, which is set to be built in the second semester, will have a production capacity of between 30 and 60 tons of palm oil per hour.

Sampoerna Agro expected to boost its production by 5 to 10 percent this year with the new land. The company produced 344,675 tons of CPO and 87,643 tons of palm kernel last year.

“If the capacity [of the new land area] reaches 60 tons per hour, the investment will stand at between Rp 100 billion and Rp 140 billion,” Michael estimated.

On Monday, Sampoerna Agro’s shareholders agreed to pay out Rp 165 billion in dividends, or 30 percent of last year’s net profits of Rp 540.94 billion. The dividends, valued at Rp 87.3 per share, will be paid on July 20.