This article first appeared in The Edge Financial Daily on May 29, 2017 - June 4, 2017

PETALING JAYA: With sufficient land banks and no expansion plans in the pipeline, TSH Resources Bhd plans to stay focused on productivity and efficiency improvements to lower production costs and ensure long-term sustainability.

Managing director Datuk Tan Aik Sim said the plantation group is prioritising the management of costs that are incurred given the nature of its business, to ensure its budget is not overrun.

“It is important that we manage our costs against what we have set in our budget. This (cost management) is not something we have just planned but it’s a process that [sees different challenges] at different stages of the plantation.

“For example, in the planting stage, you have certain costs to manage. And as the trees mature or when they are in the harvesting stage, you have a different set of challenges,” he told The Edge Financial Daily after the group’s annual general meeting last week.

However, cost management does not necessarily mean trimming its workforce, Aik Sim said. Instead, salaries are now paid based on the piece-rate system, which means employees are paid according to how much work is done and results.

“Since we emphasise on improving productivity, instead of being paid just for showing up to work, we now pay them based on how much efforts and work are put in for the day. So the hardworking ones will earn more,” he said.

TSH Resources has an oil palm plantation land bank of about 100,000ha spread across Sabah as well as Kalimantan and Sumatra in Indonesia. As at Dec 31, 2016, the size of planted areas totalled 42,103ha.

Aik Sim said there are no plans to expand the group’s footprint elsewhere for now as it intends to capitalise on its existing assets, whether planted or vacant.

“We have enough land bank that we procured five to 10 years back, and have served us well and will [last us going forward]. As for the unplanted areas, we are going to reserve that for future plantations,” he said.

Elaborating on this, TSH Resources chairman Datuk Dr Tan Aik Pen, who is Aik Sim’s brother, stressed that business growth is “not a miracle” that can simply be done, but requires hard work and focus.

“We are very focused on and happy with what we currently have. We want to continue doing what we know best as well as enhance our productivity and efficiency. Business growth is no miracle, but requires hard work,” Aik Pen said.

“When it comes to expansion, there is no such thing as ‘suddenly’. We don’t act on impulse or make random plans. With that, we have sufficient land bank to work on and would rather optimise our [assets and resources],” he added.

TSH is also commissioning one unit of palm oil mill in Sumatra, bringing the group’s total number of mills to eight — four in Sabah and another four in Indonesia.

Though the group declined to share its outlook of the palm oil industry going forward as “these things are difficult to predict and are beyond our control”, it is optimistic about posting a double-digit growth in terms of fresh fruit bunch (FFB) production.

The projection is on the basis of the relatively young age profile of its oil palm trees, Aik Sim said.

Based on the group’s 2016 annual report, of the 42,103ha of planted areas, 15,277ha (36%) are in their prime yielding age, 11,187ha (27%) are of young mature palms and the remaining 15,639ha (37%) are of immature palms.

“Honestly, we do not give our forecast for things such as crude palm oil prices, targeted revenue or the impact of the foreign exchange movements on the business as these things are beyond our control,” Aik Pen said.

“But [with] that said, we are seeing a double-digit growth in [FFB] production this year. Barring unforeseen circumstances, we expect to achieve these figures,” he said.

For the year ended Dec 31, 2016 (FY16), TSH Resources’ FFB production stood at 595,821 tonnes, down 8.2% from 648,722 tonnes in FY15, due to the prolonged drought caused by the El Nino in 2015 and 2016.

TSH Resources’ core pre-tax profit for the first quarter of FY17 jumped 63% to RM41.1 million, from RM25.2 million a year earlier.

“This significant improvement in profitability is made possible by several factors, including the increase in FFB production volume, lower production cost, and better crude palm oil price,” the group said in a statement last Thursday.

As for its wood business via its 67.46%-owned unit Ekowood International Bhd, TSH Resources said it hopes to grow its Malaysian market in the next two to three years, seeing the rise of high-end properties in the country.

Ekowood International is a premium wood flooring manufacturer that was publicly listed before it was taken private by TSH Resources on April 14.

According to the group, about 75% to 80% of its wood products are exported.

“But of course, the local market plays an equally important role. Judging from its business progress and the increase in high-end properties in Malaysia, we’d probably do more for [this market] in the next two to three years,” Aik Sim said.