Malaysia Hap Seng expands palm estates, fears tax

By Niluksi Koswanage

KUALA LUMPUR (Reuters) - Small, dynamic Malaysian planter Hap Seng Plantations (HAPP.KL) plans to expand its oil palm estates by a third, to 118,000 acres, over two years to exploit still resilient demand for palm oil, a top official said on Monday.

But a long-standing sales duty on crude palm oil for key producer Sabah state on the island of Borneo makes the Southeast Asian country's shipments less attractive than rival Indonesia, said Executive Director Au Yong Siew Fah, whose firm is based in Sabah.

"Palm oil margins are decent enough for us to expand from our base in Sabah, with current prices hovering around 2,000 ringgit ($540) per (metric) ton. We are looking at 20,000 to 30,000 acres," Au Yong said, speaking in the Malaysian capital as part of the Reuters Food and Agriculture Summit.

"There is still demand for palm oil but there has been a shift to Indonesian palm oil because palm oil producers in Sabah have to pay a sales tax of 7.5 percent and this is where most of Malaysia's palm oil comes from."

The eighth largest listed palm planter in Malaysia's benchmark plantations index .KLPL, Hap Seng Plantations is 51 percent owned by property-to-fertilizers conglomerate Hap Seng Consolidated (HAPS.KL).

The acquisitions, estimated at 300 million ringgit, will be financed by mix of cash and bank borrowings, Au Yong said.

"We are in a good position financially to acquire, despite the fact that degraded agricultural land in Sabah is still at a premium due to a land shortage," Au Yong said.

"We would expect to pay 300 million ringgit for these lands," he added. Hap Seng Plantations has a short term investment and cash balance of 45.7 million ringgit at the end of 2008 while its parent held 307.6 million ringgit by September 30 last year.

Although palm oil prices have tumbled 56 percent to around 1,930 ringgit from a record of 4,486 ringgit last year, the cost of planted assets is still 50 percent higher than at the start of the boom in 2007.

It costs 16,000-20,000 ringgit per acre to buy agricultural land in Sabah and the neighboring state of Sarawak -- the last frontier for Malaysia's palm oil push.

Sabah accounts for a third of the country's total palm oil output of 17.9 million metric tons and total oil palm estates of 10.6 million acres.

TAXES, CHEAPER SOYOIL WEIGH

Palm oil, used in products ranging from sweets and lipstick to biofuels, has narrowed its discount to rival U.S. soyoil to the smallest in a year as stocks shrinks and demand stays buoyant.

Cargo surveyor Intertek Testing Services reported on Monday that Malaysian palm oil shipments rose 16.18 percent to 591,567 metric tons from 509,200 metric tons shipped between February 1 and 15.

"Palm oil prices are in a good range of 1,900-2,000 ringgit, but we would be losing market share to U.S. soyoil in months to come on price," Au Yong said.