Sunday 14 Jul 2024
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This article first appeared in The Edge Malaysia Weekly on April 29, 2024 - May 5, 2024

LOW-PROFILE company Nextgreen Global Bhd, which is in the business of turning empty fruit bunches (EFB), a byproduct of palm oil mills, into green and sustainable products such as pulp and paper, pulp moulding, fertiliser and animal feed, is now ready to showcase to the world what it can do.

After years of research and development (R&D) in the area of EFB and successfully commercialising its pulp production facility — with a capacity of 10,000 tonnes per year — in 2022, Nextgreen has found partners with the financial muscle to help scale up its operations.

“We have the breakthrough technology, now it is time for us to scale up. That is why we invited IOI Corp Bhd and also China’s Xiamen C&D Paper & Pulp Group Co Ltd to do business with us,” says Nextgreen managing director Datuk Lim Thiam Huat, 60, in an interview with The Edge.

Lim owns a 13.06% stake in Nextgreen, making him the second largest shareholder behind Datuk Gan Kong Hiok, who had 17.7% equity interest as at Feb 13, 2024.

Lim says the group invested about RM20 million over the last two decades to get to where it is today in terms of manufacturing paper pulp from EFB using its patented technology, known as the Preconditioning Refiner Chemical-Recycle Bleached Mechanised Pulp (PRC-RBMP), which he believes is the first of its kind in the world.

“Quite a number of companies have gone ahead [and tried to produce paper pulp from EFB], but they faced difficulty in achieving the quality of what Nextgreen can do today. Many have only been able to achieve the level of corrugated paper, but not up to the international standard required.

“As a result, they have not been able to commercialise it and are forced to shut down after a while because they cannot sell their products,” Lim says.

On April 8, Nextgreen announced a joint venture with IOI Paper Pulp Sdn Bhd, an indirectly wholly-owned subsidiary of IOI Corp, for the development of a zero-waste paper pulp plant in its Green Technology Park (GTP) in Pekan, Pahang.

On the same day, Nextgreen’s shares closed at a three-month high of RM1.05, up 13% from a low of 93 sen on April 3.

The joint venture (JV) announcement with plantation giant IOI Corp was followed by another one, where the newly established JV company — Nextgreen IOI Pulp Sdn Bhd — will team up with Xiamen C&D, a Fortune China 500 company, to develop the paper pulp production facility in Pekan.

The plan will see a new JV company established, with Nextgreen IOI Pulp holding 75% and Xiamen C&D the remaining 25%.

The three parties will work together on developing the paper pulp production facility that will span 43 acres within the GTP. The plant, which will cost RM600 million, is expected to be completed within 18 to 20 months, with an initial capacity of 100,000 tonnes of paper pulp per year produced from oil palm EFB.

“To scale up in a big way, we needed financial support as well as an off-taker. Of course, we already have a letter of intent from Japan’s Marubeni Corp as one of our off-takers.

“But having another party to participate with us; one that understands our business and loves our concept of the circular economy, zero waste, as well as a green product, that’s where Xiamen C&D comes into the picture,” Lim says.

The roles Xiamen C&D will play in the project include assisting with the financing of the project as well as being an off-taker of the products made by the pulp production facility.

Rolling out on full steam

Nextgreen is certainly not stopping at just 100,000 tonnes of paper pulp per year from its upcoming facility. With the backing and encouragement of its Chinese partner, it will scale up to 200,000 tonnes after achieving its initial 100,000-tonne target.

Thereafter, the plan is to double capacity to 400,000 tonnes per year, says Lim. All these goals are expected to be achieved within three years of the commencement of the paper pulp facility under the JV.

The JV company’s ambition is huge because it also has plans to set up a paper pulp facility in Sabah and Sarawak in the future.

Lim adds that it would also make sense for Nextgreen to expand into Indonesia, the world’s top producer of palm oil, because of the abundance of raw materials available in the country.

“We have decided to go ahead with the next plant in Indonesia. We have identified several places and we are targeting for it to take place this year,” he says, declining to elaborate.

However, he adds that it is clearly spelt out in the term sheet with Xiamen C&D that the Chinese partner intends to expand with Nextgreen IOI Pulp in Malaysia as well as Indonesia.

Nextgreen also intends to set up 20 collection centres throughout Malaysia, says Lim. The collection centres will serve as points of collection of the EFB from palm oil mills for its paper pulp facility and also a processing facility for organic fertiliser.

The group currently has four collection centres and aims to have 20 over the next five years. Each collection centre will involve around RM50 million to RM60 million of investment.

A year ago, Nextgreen entered into a shareholders’ agreement with Greentech Malaysia Alliances Sdn Bhd, Koperasi Sahabat Amanah Ikhtiar Malaysia Bhd and Koperasi Perkhidmatan Setia Bhd to establish a JV company called GTC Biomass Bhd for the purpose of constructing, developing and commissioning two collection and processing centres in the country.

Greentech Malaysia Alliances will assist in bonds or green sukuk issuance while the cooperative will help in getting crowdfunding from other cooperatives for a chance to subscribe for preference shares in the JV company.

Cheaper than wood-based pulp

Unlike other recycled materials that tend to be more expensive to produce compared with the conventional material, transforming EFB into paper pulp fit for various paper products is significantly cheaper than wood-based pulp.

“There is vast availability of EFB in Malaysia, in the range of 30 million tonnes. At the moment, only 10% to 15% of EFB is being utilised for energy conversion and there is a balance of 85% available from the mills,” Lim points out.

The market price for a tonne of EFB ranges from RM2 per tonne to as high as RM12 per tonne, depending on the quality of the EFB.

“It is not very costly to convert the EFB into pulp. In fact, it is cheaper than the wood pulp process. When we entered into this business, we wanted to make sure that we could achieve a comparative price [with the wood pulp process] because if our cost was too high compared to the wood pulp process, it would not be economically viable.

“We have a bit of an advantage over wood pulp because our raw material is much cheaper than wood chips. To turn wood chips into pulp, manufacturers have to either buy the wood chips from the market or go into reforestation and harvest them. There is also the cost to bring the wood chips to the mills,” says Lim, adding that there is savings of some US$150 per tonne from just using EFB as raw material.

Based on the savings alone, one can understand why Xiamen C&D, which produces 13 million tonnes of paper and pulp per year, would be keen on Nextgreen’s technology and is supportive of the expansion of the latter’s operations.

Lim acknowledges that competitors from other countries will eventually catch up with Nextgreen’s patented technology but he is not worried about it because of the ecosystem the group has built to safeguard its interests, which would make it difficult for competitors to follow suit.

Palm oil millers are incentivised with carbon credits based on the amount of EFB delivered to Nextgreen. The group also incentivises millers who are usually in the plantation business by offering them discounts on the fertilisers the group produces.

The discounts are possible because Nextgreen saves on logistics cost, thanks to its collection centres, which double as mini processing plants for EFB pulp, thereby producing the fertiliser by-product close to the millers.

Nextgreen has also worked with various governing bodies such as the Ministry of Plantation and Commodities and the Malaysia Palm Oil Board to come up with regulations and requirements to ensure that there is due process at the collection centres.

“Our proposal was adopted in the National Biomass Action Plan, which put in some safeguards where parties cannot take the EFB without addressing the waste and environment,” Lim says.

Still need time for earnings to show

While Nextgreen has grand ambitions for itself going forward, it will still take some time before the earnings show.

Assuming the construction and setting up of its paper pulp facility goes as planned and achieves commencement within its targeted timeline of 18 months, earnings from the 100,000-tonne-per-year paper pulp facility will only start to roll in at the end of 2025.

The revenue that can be generated from the facility is estimated at RM355 million per year, based on the average market price of pulp at US$750 per tonne, with a gross margin of 30% and net margin of 20%.

Between now and the commencement of the facility, Lim sees earnings improving slightly, coming on the back of the group’s sales of the various by-products of the EFB pulp production at its current 10,000-tonne paper pulp facility.

For the financial year ended Dec 31, 2023 (FY2023), Nextgreen’s revenue nearly doubled to RM63.73 million from RM32.93 million in FY2022.

Net profit, however, fell 29% to RM9.65 million from RM13.61 million in the previous year on the absence of certain non-operating income — a reversal of impairment losses and gains of disposal on property, plant and equipment (PPE) — in FY2022. It also incurred higher income tax expenses amounting to RM2.54 million in FY2023 compared with RM11,000 in FY2022.

In the second half of this year, Nextgreen will see a contribution from its by-products, namely its organic solid fertiliser, a liquid fertiliser and animal feed.

It is worth noting that no part of the EFB goes to waste as Nextgreen, through its R&D, has managed to find a use for all the residue and discharge from the pulp-making process and convert these into commercialisable products.

“The idea of this zero waste concept is looking at how we can address the oil palm industry issues brought up by the West. If we take up the EFB, only extract and take the good part of it out and leave waste behind, the problem goes back to the environment, then there is no meaning,” notes Lim.

He is optimistic about the prospects for the by-products as well, pointing out that the initial response from the trial plot conducted has been good and that the group has potential off-takers who are interested in being distribution agents for its products.

Nextgreen’s share price closed at 89.5 sen last Friday — down just 2% over the past year — valuing the group at RM903.8 million. 

 

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