This article first appeared in The Edge Malaysia Weekly on July 10, 2023 - July 16, 2023

DESPITE limited success, United Malacca Bhd’s (UMB) plan to diversify away from a single crop — oil palm — continues, and only once this exercise is complete will its chairman be ready to relinquish the role she has held in her three-generation family business since 2011. This comes on the back of the Tee family widening its stake in UMB via Prosper Group over the last few years, prompting questions as to who will control the plantation group in the near future.

“I am intent on diversification, as it is the only way forward. The pressure on oil palm cultivation is to continually increase yields and reduce costs. I would like to find a crop with which to be a premium producer so I don’t have to compete on cost, but rather, quality,” UMB chairman Datin Paduka Tan Siok Choo, 70, tells The Edge at the company’s office in Kuala Lumpur.

While Tan does not provide a timeline for the diversification plans when asked, she explains that agriculture diversification tends to take years of trial and experimentation.

According to UMB’s 2022 annual report, Tan, her sisters and her brother-in-law collectively held 12.17 million shares, or 5.8% equity interest, in the group as at July 30, 2022. Overseas-Chinese Bank Corp Ltd, together with Great Eastern Life Assurance (Malaysia) Bhd, held 27.55%, followed by the Prosper Group’s 11.91% then.

The Tee family came into the picture when Prosper Palm Oil Mill Sdn Bhd (PPOM) — now known as Prosper Capital Holdings Sdn Bhd — emerged as a substantial shareholder in UMB in June 2018, by acquiring 10 million shares, or a 7.87% stake, in the latter. In October 2019, directors of PPOM — Tee Cheng Hua, then 65, and his nephew Datuk Seri Tee Lip Sin, then 48 — were appointed non-independent non-executive director of UMB and named an alternate director respectively. Bursa Malaysia filings show that the Tee family had accumulated 30.72% equity interest in UMB as at July 3, 2023.

Cheng Hua is also an executive director of Pahang-based publicly traded plantation company Far East Holdings Bhd, which is a 40% shareholder of Prosper Capital. As at March 31, 2023, the Tee family’s unit Prosper Trading Sdn Bhd was the second-largest shareholder, with 23.73%, in Far East Holdings.

The prospect of OCBC eventually disposing of its shares in UMB — as required by Singapore’s banking rules that prohibit banks from owning non-bank investments — and the Prosper Group buying them up, does not surprise Tan.

“I’m prepared for that. I have a good relationship with the Tees. Cheng Hua and Lip Sin’s familiarity with the issues pertaining to planting oil palms and managing oil mills is advantageous to UMB.

“They have said that they are comfortable with me as chairman. [As to] how long that would last, well, it would not be fair of me to ask them to promise to re-elect me for ‘x’ number of years. So long as they think that I can contribute to UMB,” says Tan, adding that UMB chairmen — including her late grandfather Tun Tan Cheng Lock, who was a prominent politician and the group’s founder, and her late father Tun Tan Siew Sin — had never appointed their successors.

“In July 2011, [then] chairman Choi Siew Hong decided to step down. At the board meeting following his resignation, I was unanimously elected chairperson by the then UMB directors. The same process will take place when I decide to retire as chairperson.”

For the Prosper Group, whose oil palm plantations are located in Pahang and Selangor, UMB’s assets in Sabah and Indonesia will be a boost to its geographical expansion.

“We strongly believe our operations (40,469ha of oil palm plantation, 10 palm oil mills and a refinery/oleo chemical complex in Westport, Klang) are synergistic with those of UMB. Yield per hectare (YPH) for estates in Sabah and Indonesia is still low. UMB will further improve infrastructure such as roads and drainage to enhance operational efficiency.

“[Although the] existing cost structure is high, once capital expenditure such as improving estate infrastructure (roads and drainage to enhance operational efficiency) as well as further introduction of mechanisation programmes is spent effectively, YPH will improve and unit production cost will automatically come down,” Cheng Hua tells The Edge in an email.

“There is great potential for UMB’s Sabah estates to enhance its operational efficiency. With the strong and stable CPO pricing, this segment should contribute significantly to UMB’s bottom line.”

Given UMB’s and the Prosper Group’s commitment to the agricultural industry’s “No Deforestation, No Peat and No Exploitation” (NDPE) policy, greenfield development is not an option for plantation expansion. With that, Tan emphasises that UMB’s only way forward is to diversify into farming other crops on its existing land bank, given the scarcity of new land. Currently, UMB is experimenting with the trial planting of ginger, stevia, durian and watermelons on a small scale to determine the crops’ marketability.

For the fourth quarter ended April 30, 2023, UMB’s net profit plummeted 63.58% to RM7.65 million, from RM21.1 million a year earlier, dragged down by lower crude palm oil and palm kernel prices. Quarterly revenue fell 8.24% to RM135.3 million from RM147.45 million.

For the full financial year ended April 30, 2023, net profit fell 44.2% year on year to RM60.38 million from RM108.2 million, even though revenue improved 9.1% to RM604.5 million from RM553.96 million.

“[Our] profit fell tremendously because of rising costs,” says Tan, who foresees a challenging outlook for FY2024, particularly because of cost issues pertaining to labour.

“Until we really step up mechanisation, we will always have [this] problem because labour comes with two main costs — wages and sunken costs for workers’ housing and schools for their children.”

As for UMB’s strategy to increase profitability, Tan is hopeful of better productivity from the land under the group’s Indonesian 83%-owned unit PT Lifere Agro Kapuas (LAK) in Kalimantan.

She explains that the land under LAK has three advantages, which UMB estates in Malaysia lack. First, LAK encompasses 25,281ha, which is more than UMB’s combined 22,779ha in Malaysia as at April 30. Second, the entire hectarage in LAK is in a single location, offering ease of management compared with UMB’s Malaysian estates in five states — Negeri Sembilan, Melaka, Johor, Pahang and Sabah.

Third, LAK’s flat estate facilitates mechanisation. “In contrast, some UMB estates like Leong Hin San in Seremban are partly hilly, making mechanisation, although feasible, challenging,” Tan says.

“LAK has yet to fulfil its potential. A lot of the oil palms are still young and we faced [adverse weather conditions] such as flooding last year, and El Niño this year notwithstanding. If we can bring about a substantive move in diversifying out of palm oil, then I think I’ll be happy to step down.”

Meanwhile, UMB is currently in discussions with internal stakeholders, its joint-venture partner and the Indonesian government to find out what can be done with the 59,920ha of land in Central Sulawesi under its 60% Indonesian subsidiary PT Wana Rindang Lestari. Although the government has approved the land for planting, with a validity of 60 years from June 2014, the planting programme for the land has been halted since FY2021, when non-government organisations raised environmental concerns, requiring a High Conservation Value/High Carbon Stock study.

The venture to Sulawesi had been part of UMB’s diversification plan — both geo­graphically and away from reliance on oil palm — with plans for it to plant stevia, coconut, coffee and cocoa to widen its earnings base.

“[This] 59,000ha is no small piece of land. There is a lot of interest because Sulawesi is a major [mining ground for] nickel, cobalt and several other minerals needed to make lithium batteries for electric vehicles. Many major companies such as Tesla Inc and South Korean companies are looking to invest in mining in Sulawesi ... The easiest thing for us to do is to sell the land to these mining companies ... [But] if we plant crops like stevia, coffee, cocoa and so forth, wouldn’t that be better than selling [the land] to a mining company?” Tan says of the stalemate.

UMB has written off RM12.3 million and RM16 million in FY2022 and FY2021 respectively from the Sulawesi investment, which had cost RM30.3 million in 2018.

Shares in UMB, which rose 5.45% to a high of RM5.50 in February, fell to RM5.20 last Friday, valuing the company at RM1.09 billion. 

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