KUALA LUMPUR (Sept 1): Chemical Company of Malaysia Bhd (CCM) is closing down its fertilizer plant in Shah Alam and retrenching 230 staff amidst the weak demand market demand for ammonium nitrate (AN) based fertilizers as oil palm planters opt for cheaper fertilizers given the low crude palm oil (CPO) prices.

CCM told Bursa Malaysia today that its 50.1%-owned unit CCM Fertilizers Sdn Bhd is closing down the plant to mitigate risk associated with its business.

The remaining 49.9% equity stake in CCM Fertilizers is directly held by Lembaga Tabung Haji.

CCM also disclosed that CCM Fertilizers posted pre-tax loss of RM4.3 million in 2014, mainly due to changes in market conditions driven by the decline in CPO prices.

In a statement today, CCM said it will outsource the AN-based fertilizer manufacturing to a third-party manufacturer moving forward, and reiterated that there will be no change with respect to the availability of its Cock’s Head Brand (CHB) products as manufacturing of the products will continue at its plants in Lahad Datu, Sabah, and Bintulu, Sarawak.

“We wish to assure our customers and suppliers that despite the closure of the Shah Alam plant, there will be no disruption of supplies in the market.

“There is an adequate stock of CHB products and a transition into third party manufacturing has already commenced,” CCM said.

Following the closure of Shah Alam plant, CCM said 232 workers will be retrenched and “market driven” severance packages will be accorded.

“We are extremely saddened by this situation and the untenable business proposition left us no choice but to resort to this option. We thank all our staff for their years of service. We will work closely with our outgoing staff to provide counseling and seek placement opportunities,” the group said.

CCM expects the redundancy and asset impairment exercise will cost approximately RM30 million and barring any unforeseen circumstances, the closure of the plant is expected to be completed by June 30, 2016.

Last week, CCM released its second quarter ended June 30, 2015 (2QFY15) financial results which saw net profit lowered 85.25% to RM313,000, from RM2.12 million a year ago; while revenue declined 24.91% to RM233.6 million in 2QFY15, from RM311.1 million a year ago.

The group said this was mainly dragged by its fertilizers division as the business experienced lower demand for compound fertilizers amidst low CPO and rubber prices.

CCM (fundamental: 0.35; valuation: 1.8) traded unchanged at 91 sen today, giving it a market capitalisation of RM413.71 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)