IN the six-odd years since its exit from Bursa Malaysia, Kulim (Malaysia) Bhd, which is owned by state investment arm Johor Corp Bhd (JCorp), has been working on transforming itself into an integrated palm oil player with plans to set up a refinery in Johor, where it has 55,796ha of oil palm planted area.

Kulim is principally involved in upstream and midstream palm oil operations in Malaysia — predominantly in Johor — and Indonesia.

According to its managing director Mohd Faris Adli Shukery, who joined the company in 2020, Kulim is actively seeking partnerships with established players in its journey deeper along the palm oil value chain. “We are looking at the right vehicles to actually move into that segment, perhaps at the refinery level,” he tells The Edge.

Kulim has no refinery at present but it has five palm oil mills with a combined capacity of 295 tonnes per hour in Johor. The mills and its Malaysian estates are certified by the Roundtable on Sustainable Palm Oil (RSPO).

Malaysia has a refining capacity of 26 million tonnes compared with an annual crude palm oil (CPO) production of 18.45 million tonnes in 2022.

While Mohd Faris acknowledges that there is overcapacity in this segment in the country, Kulim sees the need to capture higher margins while ensuring the supply integrity of its products — an important selling point for customers in developed markets.

“If you were to assess the refining capacity in Malaysia, there would be overcapacity. But in our case, if we don’t refine our own products, we lose margins that we could have had. The question is whether we want to build a new one or buy an old one. We have to strike a balance between what is the right entry into the downstream market,” he says.

“If I have my own refinery, I can assure customers that this is coming directly from the farm to the products itself. This is the value proposition that we want to work on. And I think that’s the differentiating factor that will allow us to capture better margins.”

Kulim’s CPO production of 275,747 tonnes in 2021 is almost entirely sold in Malaysia, with some going to Singapore. According to Mohd Faris, the RSPO-certified oil fetches premiums of RM100 to RM200 per tonne on average.

Its downstream segment could also generate synergies with its agro-food business, which comprises farming vegetables, fruits (including coconuts) and livestock.

Mohd Faris explains that Kulim’s downstream expansion could see it setting up its own kernel crushing plant that produces oil and meal, which can be developed into animal feed for its livestock business.

To be funded by a combination of debt and internally generated funds, the refinery is still at the exploration stage. Mohd Faris says what is clear is that the project will be undertaken with a partner that can offer the best value to Kulim. He hints that even its customers are keen on this partnership while market observers say the partner could even be a foreign party.

“When you look at Kulim, we’re not a big boy in the context of size and all, and we have not been in [the] downstream [segment] before. So, there are a lot of things that need to be built, not just facilities alone. You still need expertise in terms of sales and marketing,” he says.

“Furthermore, the fact is we are going downstream but not on a bulk basis. [It is] more [in terms of] high [value add] — the speciality oils. So, I think there is recognition of the quality of products that we produce. And I guess by going downstream, we would have better identity, better recognition as well by the customers and by the market.”

According to its latest publicly available financial report, for its financial year ended Dec 31, 2021 (FY2021), Kulim’s net gearing stood at 0.63 times, improving from 0.75 times at end-2020.

In FY2021, Kulim turned its financials around, registering a profit before tax and zakat of RM433.81 million compared with a loss before tax and zakat of RM316.45 million in FY2020. Revenue jumped 48.65% to RM1.65 billion from RM1.11 billion in FY2020, owing to high CPO prices. The company paid out RM150 million in dividends for FY2021, about triple the RM52 million it paid out the year before.

Heading back to the local bourse?

Kulim rewarded shareholders even when it was loss-making in FY2020 and FY2019, paying out dividends of RM52 million and RM200 million respectively.

JCorp is looking to share the profits as it is said to be looking at a public listing of Kulim in 2023 or 2024 to raise RM1 billion. According to reports, RHB Investment Bank Bhd is advising on the initial public offering, which seeks to value Kulim at US$1 billion (RM4.48 billion).

When asked about the listing, Mohd Faris declined comment, only saying it is a shareholder decision. Meanwhile, JCorp responded separately that it is “driven to unlock” the inherent value of the plantation ecosystem as Kulim ventures into a new business stream.

“As a responsible and forward-thinking organisation, we believe it is important to take a deliberate and strategic approach to such matters, and to wait until the market conditions are favourable before taking any steps towards a potential listing. At this juncture, we are committed to improving the value proposition of this investment,” says Hasniza Hafiz, JCorp’s senior general manager for group corporate communications, adding that the group is unable to share details on the matter due to corporate governance guidelines and confidentiality.

She points out that JCorp continually reviews and assesses its investments, with a view to strengthen its investment portfolio. In relation to its agribusiness arm, it had done much to strengthen its position as a “leader in the market”.

In August 2016, Kulim was delisted from Bursa after a selective capital reduction and repayment exercise at RM4.10 per share, or RM2.2 billion in total. JCorp controlled 61.87% of the company when the offer was made.

Kulim traces its history back to 1933 when Kulim Rubber Plantations Ltd was incorporated in the UK. It was later incorporated as a public-listed company, and in 1975 was listed on the Main Board of the Kuala Lumpur Stock Exchange. A year later, JCorp became the major shareholder of Kulim.

In 2015, Kulim completed the disposal of its entire 48.97% stake in New Britain Palm Oil Ltd to Sime Darby Plantation Sdn Bhd for a total consideration of about RM2.75 billion, making a gain of RM1.34 billion. The proceeds were used to pare down debts, for working capital purposes, to expand its plantations and to venture into oil and gas (O&G).

In FY2015, Kulim paid out a special dividend amounting to RM500 million.

Two core businesses

Kulim previously focused on four core business segments: plantation, agro farming, livestock and trading services, which included O&G. It now wants to streamline its operations into just two main businesses — plantation and agro food — as part of its restructuring agenda.

“It would involve the restructuring of the other businesses that are not core to us. So, in that context, it would involve the divestments and disposals of non-core, non-performing businesses and assets,” says Mohd Faris.

“With that being put in place, our agenda is clear. We will be focused on the agribusiness sector.”

The non-core assets include its interests in O&G via EA Technique (M) Bhd — in which it has direct and indirect stakes of 50.05% — and Danamin (M) Sdn Bhd. In fact, the company is also looking to exit from Indonesia, where it has 7,362ha of planted area.

“[The Indonesian estates] are not generating the right returns for us. And I think when we dive deep into our strategy, it’s about putting more focus on the Malaysian production,” he says.

As Kulim becomes laser-focused on its plantation segment, the group is stepping up efforts to ensure the palm oil produced is 100% certified, says Mohd Faris. Currently, 30% of the fresh fruit bunches (FFB) Kulim processes at its mills are from external suppliers, sourced from smallholders who are largely certified under the Malaysian Sustainable Palm Oil (MSPO) scheme.

“Our external suppliers are mostly MSPO-certified, but you do not get premiums by being MSPO-certified. You only get premiums when you are RSPO-certified. We do have suppliers who are RSPO-certified but those are usually smallholders. We ensure that these smallholders do have certification and in return, we pay a premium for the certified crops that come in,” he says.

Kulim takes pride in achieving operational statistics that are above the industry average.

“Our yields based on the last five years have been quite respectable. We have always been able to achieve above 20% in our oil extraction rate (OER). So, I would say we are at the high end among peers and quite at the top end of production,” says Mohd Faris.

In 2021, Kulim processed 1.41 million tonnes of FFB, including 378,273 tonnes from external suppliers. CPO production totalled 295,747 tonnes, 6.43% less than the 316,066 tonnes in 2020.

Its FFB yield per hectare decreased to 20.11 tonnes/ha from 22.93 tonnes/ha in 2020 but was higher than the industry average in Johor and Peninsular Malaysia, at 17.73 tonnes/ha and 16.24 tonnes/ha respectively.

Its OER decreased to 20.83% from 21.04%, yet remained higher than the industry average of 19.68% for Peninsular Malaysia and 19.92% for Malaysia as a whole.

JCorp’s key assets include Kulim; KPJ Healthcare Bhd, which operates 28 hospitals in Malaysia, a couple of hospitals in Indonesia, one each in Bangladesh and Bangkok, and a handful of retirement and aged care facilities; QSR Brands (M) Holdings Bhd, with its KFC and Pizza Hut restaurants in Malaysia, Singapore, Brunei and Cambodia; property development outfit Johor Land Bhd, which has a strong presence in the state; and, more recently, Damansara Holdings Bhd, which is also involved in property development.