Tuesday, April 16, 2024

Sawit Sumbermas budgets IDR 1 trillion Capex to prep up production increase

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Palm oil company PT Sawit Sumbermas Sarana Tbk (SSMS) has allocated IDR 1 trillion (65.6 million) Capital expenditure (Capex) in 2023 for planting plants and has targeted a 15% production increase.

Established in 1995, Sawit Sumbermas is located in Pangkalan Bun, Central Kalimantan. It has an integrated business across 23 oil palm estates, 8 mills and 1 kernel mill. The company was listed at the Indonesia Stock Exchange (IDX) in 2013 and the public holds 37% of the total company share. 

Promising production rate

Corporate Secretary Swasti Kartikaningtyas said that the company would source the Capex from its internal fundings, which could reach between IDR 600 billion and IDR 1 trillion.

“Apart from the company’s operations, we are open to option for expansion. However, we have to adjust it to the company’s sustainability program,” she told investor.id over the weekend.

The company’s 2023 Capex was higher compared to the previous year of IDR 500-IDR 600 billion, which was spent for construction, infrastructure and heavy equipment. 

Sawit Sumbermas is optimistic about the high demand for crude palm oil (CPO) in 2023 due to the quality of palm oil production. However, the CPO price is expected to fluctuate because of production factor and global demand.

“Nevertheless, we are optimistic that the production and financial results will increase compared to 2022,” Kartikaningtyas said.

If the company’s prediction went well according to the assumption, the company has targeted to increase production to 10-15%. Until September 2022, its CPO production reached 391,685 metric tons (MT).

Risk in Sawit Sumbermas’ business

There have been rumors that the CPO price would raise in 2023 due to global demand. Meanwhile, weather condition also affects oil palm plantations. The unpredictable bad weather could destroy or decrease the quality of oil palm harvest.

The company was able to pay off its global bonds worth US$ 300 million, which were issued on the Singapore Stock Exchange on January 24, 2018, with a coupon of 7.75% and a 5-year tenor. 

According to accurate.id, there are other challenges such as the coupon bonds do not have stored data on the owner’s bonds and it is not recorded in any certificates.

Meanwhile, cnnindonesia.com states that the company can face risks such as:

  • Interest rates on obligations depends on the financial market interest. If the price rises, the interest will go down, vice versa.
  • Obligation investments also has the risk of failed payment, especially if the borrower is unable to pay for interest and main debts.
  • The company that issued an obligation has the potential to make a withdrawal before the due date (depends if there are such clauses on the contract).

“On January 27, 2023, the company received a confirmation letter from Bank of New York Mellon as the paying agent, stating that SSMS Global Bonds had been declared repaid at the maturity date of January 23, 2023,” said Kartikaningtyas.

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