KUALA LUMPUR (July 26): Oleochemical and palm oil company Southern Acids (M) Bhd (KL:SAB) has allocated RM43.8 million to cover its capital expenditure (capex), including for planting, equipment purchase and plant upgrades.

The company earmarked RM25.4 million of the budget for the year ending March 31, 2025 (FY2025) for planting in Indonesia, according to its annual report released on Friday. The spending is part a larger RM85 million commitment to expanding its planted area by 2,200 hectares over the next four years, it noted.

“We maintain a cautious outlook” on the milling-and-cultivation segment, as crude palm oil (CPO) prices may stay "range-bound" as output increases, Southern Acids said. The company is a net buyer of fresh fruit bunches (FFB) for feedstock for the business, as its own estates only supply about 17% of the volume, it noted.

Palm oil prices have retreated from a high of RM4,407 on April 3, but have nevertheless climbed 6.5% so far this year. The benchmark three-month palm oil futures were trading at RM3,964 on Friday. 

The milling-and-cultivation segment — which operates two palm oil mills in Riau, Indonesia — accounts for 46% of total revenue. In FY2024, Southern Acids’ nearly 5,000 hectares of planted area yielded only 91,945 metric tons of FFB, while the mills produced 110,592 metric tons of CPO.

Core profit-before-tax at the segment, however, fell 68% to RM16.43 million in the last fiscal year, as both output and average selling prices fell and operating costs rose.

“Our long-term strategy is to increase production efficiency, which will in turn positively affect our cost structure,” Southern Acids said.

Together with oleochemical manufacturing, the two segments contributed nearly 85% of total revenue of RM907.96 million last year. The company manufactures fatty acids and glycerin used in everything from soap to cosmetics.

The rest of the capex will go to the healthcare services, oleochemical manufacturing, and investment-and-services business segments.

Southern Acids, which also operates the Sri Kota Specialist Medical Centre in Klang, said it will spend RM10.7 million on new equipment and software as well as renovation works. The company will also spend RM3.5 million to replace a high-pressure boiler and transformer at its oleochemical business.

The rest will be spent on the investment-and-services segment, comprising hospital building infrastructure, lift, and air-conditioning system refurbishment and upgrade works, Southern Acids added.