INTRODUCTION
As everyone knew TH Plantation is a plantation company that listed in Burse Malaysia. Their principle activities are plantations and contracting services while subsidiary activities are information technology and healthcare or biotechnology.
Since TH Plantation is a famous corporation, why we still choose it to make improvement in maximizing shareholders wealth? There are two reasons. First, although TH Plantation's profits are stable every year but it does not give any surprise to their shareholders. Its profit always increase or decrease in very slightly way. Second, according to their CEO, Haji Zainar Azwar Haji Aminuddin, he plan to push TH Plantation to be the top three most efficient and lowest cost producing plantation companies in Malaysia.
Because of these two reasons, we plan to implement a project called Oil Palm Waste Management for TH Plantation which able to match these two reasons. In this project, we need three new assets: Organic Diesel from Biomass, Gasification System and Biomass Power Generation. Besides, we also plan to merge TH Plantation with other corporation, Harbour Link Group Berhad and/or Paos Holdings Berhad. We will explain in details in the following pages.
What is our new asset?
Our new asset is oil palm waste management. The other major solid waste streams comprised of empty fruit brunches (EFB) and Palm Kernel shells (PKS). In order to generate steams and electricity for crude palm oil (CPO) processing plant, we are going to use Palm Kernel shells (PKS) as a fuel. Remaining of the PKS are either used for road hardening or, where demand exists, they are sold to third parties. Other than that, EFBs are either incinerated or useful to the field but some palm oil mills return part of the untreated EFB for mulching in the plantation while the excess EFB are incinerated. Mulching is biased to areas along access roads and indiscriminant dumping, which results in inefficient distribution characterized by excessive piles of EFB. We can sell the ash recovered from the incinerated EFB or we can use as fertilizer in the palm plantation. The current baseline activities have impacts to the environment. The anaerobic digestion generate biogas is allowed to escape into the environment which the biogas contains about 65% methane and it is one of the most powerful greenhouse gases. Besides, incineration of EFB emits particulates into the surrounding atmosphere and indiscriminate dumping of EFB causes additional methane emission into the atmosphere.
The palm oil mill (POM) is designed to be a self sufficient plant in terms of its energy requirements. Black start diesel generator sets is using for the POM power system to start up. Pressure steam is delivered to the back pressure steam turbo generator to generate electricity once the boiler reaches its operating temperature. The diesel generator are taken off and shut down after the turbo generator sets are synchronized to the low voltage busbar and operating steadily. The diesel generator sets are operated to provide auxiliary supply and electricity to the housing estate when palm oil mill is about shut down for the day. Waste management of POM should apply the best practice methods on recycling and re-use of waste based on existing regulation. Solid wastes and liquid waste are the two main wastes resulted from an operation of a Palm Old Mill. The solid wastes may consist of palm kernel shells, mesocarp fibers and empty fruit brunches while the liquid waste generated from an extraction of palm oil of a wet process comes mainly from oil room after separator or decanter. Palm oil mill effluent (POME) is the liquid waste with combination of the wastes from sterilizer condensate and cooling water. Palm kernel shells and mesocarp fibers are the mainly for solid waste to be use in-house energy generation while empty fruit brunches (EFB), either in raw form or in reduces form and incinerated EFB ash are applied for mulching in oil palm plantation.
It has several disadvantages such as the loss of oil content in EFB and the loss of potential renewable energy source is the cause of incineration of EFB. The current liquid waste treatment causes methane emission into atmosphere thus contributing to green house gas and thereby loss of potentially renewable energy source. In addition, the liquid waste treatment requires quite large lagoons area. Biogas containing methane generated during POME digestion is currently not being captured or utilized and it just escapes into atmosphere. Methane gas is one among other green house gases which can cause ozone depletion. During POME digestion odor released into surrounding air reduces the air quality in the surrounding lagoons area. Disposal of EFB into oil palm plantation without recovering remnant oil in the EFB contributes to oil spills. Meanwhile, incineration of EFB means wasting renewable energy source and heat which actually could be provided for boiler in POM.
Although there are some disadvantages but the waste management at a Palm Oil Mill can be improved through the practice. EFB is dewatered and remnant oil is recovered before it is being sent to plantation. Besides that, Palm Kernel Shells is used as fuel in a gasification plant. Considering the high calorific value of the shells, the use of the excess shells as fuel for generating power or electricity in gasification plants for villagers or POM is an optional for an optimum waste utilization. Liquid effluents are digested in a controlled digested system whereby biogas resulted from the digestion is combusted in biomass boiler. Biogas combustion could prevent emission of methane gas into the atmosphere. The waste management improvement strategies adopted for this project is an integration of energy capture and optimum use of unutilized wastes. Efficient combustion of dewatered EFB in biomass boiler for providing steam can replace incineration of EFB. The biogas collected can be combusted in biomass boiler extracting the energy from it. The palm kernel shells used for generating electricity could displace the diesel oil consumed by diesel generator sets. The POMs use generation sets to provide electricity during black start. A synchronous electrical interconnection would assist the POMs that are adjacent to PLN's 20 kV distribution grid and have excess installed capacity to reduce its black start diesel consumption. With this kind of interconnection PLN could reduce its diesel requirements for generation of electricity servicing subsidized domestic needs.
Waste management practice brings benefits to us. Dewatering of EFB which can help to reduce oil spills to environment and recover remnant oil useful as feedstock for biodiesel, potential income for POM. Besides that, it can improve the quality of EFB for fuel in biomass boilers in term of calorific value, and dewatered EFB can be used as biomass input into a catalytic conversion cycle system that can convert biomass directly into organic biodiesel. Another benefits of capturing Biogas include reduce odor in the surrounding area, less methane releases to atmosphere, less pond area required for digesting effluent, utilize biogas as renewable energy for boiler, and potential to sell CER as additional income for POM. Thirdly, benefits of gasification of palm kernel shells can help to reduce the diesel oil consumption for generating electricity, saving fuel cost, reduce CO2 emission into atmosphere, cheaper fuel feedstock than diesel oil, and utilize renewable energy source help reducing acceleration of ozone depletion. Technology intervention of a synchronous interconnection system will have the benefit for the POM such as reduce the diesel oil consumption for black start, saving fuel cost, and provide excess energy to the grid for rural electrification. Other than that, catalytic conversion cycle as a technology intervention can help to reduce biomass waste and converting it into energy and utilize shells that are just being used for road hardening for energy generation.
A cluster of palm oil mills would consist of two or more POMs which are considered enough to provide biomass wastes for supporting the cluster activities for generating energy. The POMs in a cluster selected should have reasonable distances in order to minimize the collection or transportation cost of the biomass wastes. A cluster waste management and energy capture such as Biomass Power Plant which is dewatered EFB from a cluster of POMs selected is sent to a biomass power plant. EFB is combusted in a biomass boiler to provide steam for generating electricity. The electricity could be sent to the nearest grid. Other than that, Biodiesel Plant is the remnant oil recovered from dewatering of EFB from POMs selected as a cluster could be used as feedstock for the preparation of biodiesel in a biodiesel plant. The plant could also receive remnant oil from other POMs outside the cluster. The benefits of the cluster of Biomass Power Plant include potential income of POMs to sell dewatered EFB, potential to sell electricity to grid, potential to sell CER generated from the activity, and help reducing the use of fossil fuel in the grid by utilizing renewable energy. Another benefit of cluster of Biodiesel Plant is potential income of POMs to sell remnant oil recovered, potential income from selling of biodiesel and help reducing the use of diesel oil by addition of biodiesel.
Potential environmental impact of dewatering of EFB is disposal of liquid waste produced to the watercourse. This wastewater still has high content of BOD and COD. To minimize the BOD and COD content, the waste water should be treated in the existing POME management system. There is no potential impact from biogas capture system. Potential impact from gasification system is the emission of gases that can reduce the quality of air and can cause nuisance odor. There are potential environmental impacts of biomass power plant during preparation or construction phase are generation of particulates especially if the construction is carried out during dry season and generation of ambient noise levels. These impacts will be happened temporarily during construction phase. The potential impacts during operation phase are the emission of particulates and nuisance impact such as noise and visible smoke. The potential impact during operation phase of biodiesel plant will be primarily from waste water discharge from washing process. To comply with existing regulation, the effluent discharged to the watercourse should be below the standard.
Improvement of waste management would give positive effects either for POM as well as for atmosphere. A recovery of unutilized renewable energy source such as biogas containing methane gas and recovery of remnant oil in EFB is the proposed waste management system. Biogas capture would help reducing acceleration of ozone depletion through the combustion of the biogas eliminating methane gas which has 21 times global warming potential compared to CO2 gas. Remnant oil recovery from EFB would reduce oil spills to environment and the POM could harvest extra oil useful as feedstock for biodiesel. Gasification of palm kernel shells would reduce diesel oil use. This would consequently improve environment quality through the reduction of CO2 emission which would otherwise occur if current practice continues. In case that the POMs could apply this kind of interconnection system to the PLN's grid there would be environmental improvement by the reduction of green house gases emission through the reduction of the PLN's diesel consumption. The diesel consumption would be displaced by the biomass used for generating electricity in the POMs.
There is environmental benefit arising from proposed waste management. In a cluster, though the choice for using dewatered EFB for mulching or generating electricity are left to the POMs selected as a cluster, the proposed EFB use for generating electricity would help reducing the use of fossil fuel in the grid. This would help reducing global warming acceleration through the utilization of renewable energy. Other than that, Biodiesel will be used in a mixture with diesel oil. Even the portion of the biodiesel in the mixture is only 10%, it would help reducing the acceleration of ozone depletion by replacing 10% use of diesel oil.
Why we need a new asset?
Sustainable increase profit
Basically, TH plantation is a very stable company. TH Plantation Bhd which is 67.9% owned by Lembaga Tabung Haji earned a net profit doubled to RM17.8 million for the first quarter ended March 31, from RM8.37 million a year earlier. Revenue rose 29% to RM77.22 million from RM59.98 million a year earlier despite lower sales volume thanks to higher prices of crude palm oil and palm kernel compared with the year before. Earnings per share also doubled to 3.65 cent from 1.72 cent a year ago. It is clearly shows that 50% dividend payout policy from TH plantation to shareholder and tendency market will give a positive sign and will bring more investor to come in and caused stock price to increase. Even though the net profit for TH plantation is soar, it also wants to sustainable increase its profit. As a result, open a new asset- oil palm waste management will sustainable increase the profit of TH plantation. This is due to the unstable in plantation industry in Malaysia before. In year 2009, decline in FFB productions due to the dry spell that hit Peninsular which may have affected THP's FFB yield. This cause the profit or revenue of TH plantation unstable compare previously. Other than that, limited plant able land banks available also cause the yield of palm oil become lesser and lesser. High cost of CPO opening stock and amortization also suffered the operating profit of TH plantation. In addition, environment NGOs has been launching spurious attacks on palm oil as a contributing factor in global warming. Agriculture industry in Malaysia become more competitive also is a threat to TH plantation. The most important problem that will cause the profit reduce of the TH plantation is incurable oil palm disease in Malaysia. This type of disease called Ganoderma Basal Stem Rot (BSR) that is caused by bracket fungus Ganoderma. It is deathly and incurable. During replanting, if the old oil palm trunks are left to rot on the ground, various fruiting bodies of Ganoderma may be produced and thrive. Ganoderma Basal Stem Rot (BSR) is fast becoming a major threat to oil palm cultivation and palm oil production in Malaysia. There have many problem occurred in the agriculture industry caused the instability of the profit in TH plantation. If the problems become serious, it will directly influence the operation of TH plantation. Hence, development a new asset that is oil palm waste management can improve the operating even increase the profit of TH plantation. Besides, oil palm waste management is also protecting our environment then increases the image of TH plantation.
Maximize shareholder wealth
Oil palm waste management is not only to protect our environment but it can lead company to gain profit. Every year, TH plantation will give out 50% dividend as in the dividend payout policy. If the oil palms waste management combined with the high quality business process of TH plantation, it can see a great return on their investment. It will increase the value of TH plantation and increase the confidence of shareholders although that the future performance is risky. The shareholders can maximize their wealth though the operation of oil palm waste management such as MF and some of PKS are used as fuel to generate stream and electricity for the crude palm oil (CPO) processing plant and excess PKS used as road hardening or sold to third parties if demands exist. It is indirectly increase the dividend and shareholders' wealth. Thus, it will attract the more and more investors to invest in TH plantation due to higher dividend payout policy that TH plantation gave. This shows higher dividend payment will lead to higher market value. Undeniable, the confident of the investors toward TH plantation strengthen when the dividend is rising. Thereafter, the investor will buy the share of TH plantation and lead the price of share increase drastically.
Environmental Friendly
Today, environmental concern in the oil palm industry is becoming serious issue that needs serious consideration by the stakeholders. Worldwide, consumers are becoming more sensitive and aware of the origin of the product they purchase. They are increasing demanding for product from sustainable sources. In maintain the consumer's confident, ensuring the oil palm industry, TH plantation need to implement the oil palm waste management in the consistent and effective manner. This fulfill the objective of the Malaysia because Malaysia try its very best to practice sustainable palm oil such as zero burning, prudent usage of chemicals and pesticides, biological controls and optimum water management in lowland areas, in order to minimize greenhouse gas emissions. Hence, oil palm waste management which is environmental friendly which is capturing biogas include less odor in the surrounding area, less methane releases at atmosphere. Dewatering of ELB which can reduces oil spills to environment, recover remnant oil useful as feedstock for biodiesel. We can reduce the diesel oil consumption for generating electricity and saving fuel cost. In a well run palm oil mill, it is expected that each 100 tones of FFB processed yields 20-24 tons of crude palm oil and about 4 tons of palm kernels. Thus between 72 to 76 percent of the FFB comes out at various stages of the process as waste. We can turn this waste as our profit by implementing waste management. Therefore, the eco-friendly on the oil palm industry will support by the government and it indirectly enhances the image the company. In addition, biodiesel becomes economically competitive when feedstock prices are low and petroleum prices are high. Export for the biodiesel to other country like Singapore, United State and Australia will indirectly increase the profit of company. This is because there have more and more country concern with the problem of environment so they will try their best to save the world though uses the biodiesel to reduce the pollution. The demands of biodiesel increase, the demand of feedstock of oil palm waste also increase. Other than that, government maybe will provide directly subsidies for the production of oil palm to support for this industry.
Competitive advantages
Sustainable competitive advantage is the focal point of a company's corporate strategy. It allows the maintenance and improvement of an enterprise's competitive position in the market. It is an advantage that enables business to survive against its competition over a long period of time. Due to a competitive in oil palm industry become incandesce, TH plantation need to come out a new project to sustain its competitive advantages. Therefore, oil palm waste management will be a potential competitive advantage in the oil palm industry. As far as I know, oil palm waste management has not yet come out in any oil palm corporation in Malaysia. Thereby, TH plantation will become the first plantation company that develop oil palm waste management themselves. This will become the big news in the agriculture industry. The price of share of TH plantation will rise drastically. Although there will be competitor come in to compete, TH plantation also earns a big advantages in time period. This is due to when the rivals come in, TH plantation maybe come out the new idea of oil palm waste management to stay in the competitive advantages.
Top three plantation company in Malaysia
From one interview of CEO of TH plantation, Haji Zainar Azwar Haji Aminuddin, we know that his personal plan is to become one of the top three most efficient and lowest cost producing plantation companies in the country. His mission is to have very high productivity from their plantation. Therefore, oil palm waste management is the best project for TH plantation to accomplish this mission or plan. MF and some of PKS are used as fuel to generate stream and electricity for the crude palm oil (CPO) processing plant can save the cost of the plant. The EFB are either incinerated or applied to the field. The ash of recover from the incinerated EBF is used as fertilizer in the palm plantation. This can be save the cost of fertilizer to the palm oil. Due to the oil palm waste management, TH plantation can fulfill this mission quickly. If it is top in Malaysia, it is probably going to be top in the world.
Organic diesel from biomass is an asset that able to sell it as bio organic diesel and replace biodiesel. Its payback period, NVP, IRR, DOL, DFL and DTL analysis are as below:
Organic Diesel from Biomass
Initial Investment
RM 5,120,000
Cost of Capital
6%
Cash flow:
Year 1
RM 700,000
Year 2
720,000
Year 3
710,000
Year 4
800,000
Year 5
780,000
Year 6
750,000
Year 7
777,000
Year 8
800,000
Year 9
800,000
Year 10
800,000
Payback period
6.85 years
NVP
RM 461, 475.06
IRR
7.82%
The initial investment which amounted to RM5,120,000 will be consumed as: Catalytic Conversion Cycle (RM3,800,000), storage tanks (RM130,000), infrastructure (RM74,000), land (RM150,000), professional fees (RM500,000), and others (466,000).
Proceedings from calculation show NPV greater than RM0 and IRR of the project, 7.82%, is greater than cost of capital, this asset can be accepted.
DOL= % change in EBIT / % change in Sales
Case 1: DOL = (+110%/+40%) = 2.75
Case 2: DOL = (-110%/-40%) = 2.75
From DOL, we know that RM1 in sale contribute to RM2.75 in EBIT. If sale increase RM1, then DOL will increase RM2.75.
DFL = % change in EPS/% change in EBIT
Case 1: DFL = (+110%/+50%) = 2.2
Case 2: DFL = (-110%/-50%) = 2.2
From DOL, each ringgit in EBIT contribute to RM2.20 in EPS. RM1 increase in EBIT, RM2.2 will increase in DFL.
DTL = DOL x DFL =2.75 x 2.2 = 6.05
Gasification system is an asset that avoids diesel cost that able to replace diesel that needed. Its payback period, NVP, IRR, DOL, DFL and DTL analysis are as below:
Gasification System
Initial Investment
RM250,000
Cost of capital
6%
Cash flow:
Year 1
RM 90,000
Year 2
88,000
Year 3
88,000
Year 4
85,000
Year 5
85,000
Payback period
2.82 years
NPV
RM 117,956.75
IRR
22.22%
The initial investment which amounted to RM250,000 will be consumed as: plant equipment (RM80,000), installation cost (RM10,000), capital cost(RM60,000) and others (RM40,000).
Proceedings from calculation show NPV greater than RM0 and IRR of the project, 22.22%, is greater than cost of capital, this asset can be accepted.
DOL= % change in EBIT / % change in Sales
Case 1: DOL = (+100%/+50%) = 2
Case 2: DOL = (-100%/-50%) = 2
From DOL, we know that RM1 in sale contribute to RM2 in EBIT. If sale increase RM1, than DOL will increase RM2.
DFL = % change in EPS/% change in EBIT
Case 1: DFL = (+100%/+40%) = 2.5
Case 2: DFL = (-100%/-40%) = 2.5
From DOL, each ringgit in EBIT contribute to RM2.50 in EPS. RM1 increase in EBIT, RM2.5 will increase in DFL. DTL = DOL x DFL =2 x 2.5 =5
Biomass power generation is the most important asset in this project because it able to generate products that can sell as electricity replacement to others (Eg: rural areas that do not have or unable to get connection on electricity supply). Its payback period, NVP, IRR, DOL, DFL and DTL analysis are as below:
Biomass Power Generation
Initial Investment
RM6,000,000
Cost of Capital
6%
Cash flow:
Year 1
RM600,000
Year 2
650,000
Year 3
680,000
Year 4
780,000
Year 5
850,000
Year 6
800,000
Year 7
850,000
Year 8
900,000
Year 9
880,000
Year 10
880,000
Year 11
890,000
Year 12
870,000
Payback period
7.88 years
NPV
RM575,879.45
IRR
7.6%
The initial investment which amounted to RM6,000,000 will be consumed as: engine (RM1,600,000), infrastructure (RM1,500,000), equipment (RM880,000), and others (RM20,000).
Proceedings from calculation show NPV greater than RM0 and IRR of the project, 7.6%, is greater than cost of capital, this asset can be accepted.
DOL= % change in EBIT / % change in Sales
Case 1: DOL = (+120%/+40%) = 3
Case 2: DOL = (-120%/-40%) = 3
From DOL, we know that RM1 in sale contribute to RM3 in EBIT. If sale increase RM1, than DOL will increase RM3.
DFL = % change in EPS/% change in EBIT
Case 1: DFL = (+120%/+36%) = 3.3
Case 2: DFL = (-120%/-36%) = 3.3
From DOL, each ringgit in EBIT contribute to RM3.33 in EPS. RM1 increase in EBIT, RM3.33 will increase in DFL.
DTL = DOL x DFL =3 x 3.33 = 9.99%
TH Plantation current financial status
The retained earnings for TH Plantation group are RM 142,033,000. The higher amount of retained earnings of a company, the lower risk it may bear. Thus, TH Plantation group can invest in more projects as the retained earnings is high enough. It will undertake low risk as TH Plantation group has about RM 142,033,000 of retained earnings.
The long-term borrowings for TH Plantation group are RM 16,802,000. A large amount of loan leads a large amount of liability of a company and vice versa. As a result, it leads to a small amount of liquidity of a company. The amount of TH plantation Group's loan is sufficient for financing its current finance situation and select or pick more projects. If the loan is quite high, the company unable to undertake the risks for the projects as the company's liquidity is low too.
Where we should find that money??
As we need total RM11,370,000 in this project, we need to find those funds for it. We have three options here. First, straight borrow all funds from Bai Murabahah medium term notes. Second, 70% of the funds borrow from bank and another 30% of funds issue bond. Third, ask other corporation or association to invest or joint venture in this project.
Bai Murabahah Medium Term Notes
THP has a stand-by credit of approximately RM 150 million issuance of Bai Murabahah Medium Term Notes to its parent Lembaga Tabung Haji (LTH) as the sole subscriber as a return for THP that provide managerial skills to them. The stand-by facility is a back-up plan for THP's expansion and development initiatives. It also enables THP to capitalize on LTH's position as a fund manager. THP may straight borrow 100% from Bai Murabahah Medium Term Notes because it is totally enough for them to implement this project.
Take loan from bank and Issue Bond
Or else, we divide the funds needed into two parts. First part is 70% of the fund needed would be gets from taking loan from bank, even though most of the banks are likely to provided same amount of interest rate which is 5 %. However, the final decision of bank whether how much interest rate that they want to charge sometimes also depend on the project itself, so we will select the bank which provided the lowest interest rate among them. Besides, there is also some reason why we chosen taking loan from bank instead of others options. One of the reasons is that debt financing is tax-deductible. It can help us to reduce our income-tax in long term. Besides, another advantage is that we can get one lump sum of funds that is needed shortly by taking loan from bank. In addition, the repayment and structuring options to suit our project can be choose as well. Depend on the options that we choose, we can manage our repayments over time to match the changing cash flow requirements.Apart from that, we decide to take a long term loan from bank instead of issue new share because the overall profit of TH Plantation just began to become stable in these couple years. At the same time, by taking long-term loan can also help us to maintain our policy without breaking it and avoid diluting the voting right of existing main shareholder as well.
The remaining 30% of funds can settle we by issue bonds because there are several advantages of issuing bonds or other debt instead of stock when acquiring assets. Firstly, the interest rate of bond is lower and other debt is deductible on the corporation's income tax return. In the other way around, if we issuing share instead of bond, the dividends on stock are not deductible on the income tax return, since dividends are a distribution of profits to the owners of the corporation. For instance, if a $10,000,000 of bonds with an interest rate of 8% will be issuing by a company, then its annual interest expense will be $800,000. If the federal and state income tax rate on this increment is 40%. Therefore, $320,000 ($800,000 of less taxable income X 40%) of income taxes will be saved.
Other than that, the second advantage of financing asset with bonds instead of stock is that the ownership interest of existing shareholder in the corporation will not be diluted by adding more bondholders. This is because bondholders and other lenders are not either the owners of the assets or of the corporation, so there is no legal obligation to pay dividends. Therefore, all of the profit that we get from the new asset will belongs to the stockholders. However, the bondholders will receive only the amount that agreed upon interest. By issuing debt, the corporation retains their control over a large portion of the asset by using other people's money instead of its own. At the end of the day, it could help enhance the owners' financial position if the asset ends up being very profitable.
Find people to invest our company or find a suitable company to create a joint venture
Because of this project can generate electricity, thus we can find government to invest such as TNB and JKR. As we know, Tenaga Nasional Berhad (TNB) is the largest electricity utility in Malaysia which is listed on the main board of Bursa Malaysia. TNB's extensive broader electrical network serves as one of the major opportunity for us to act as energy supplier to TNB Generation by utilize the empty fruit bunch (EFB) of palm oil as its major source of fuel to fire its boiler. However, this venture can also enhance the energy policies to support renewable energy because this is in line with the Government's Fifth Fuel Policy which among others aimed at reducing emission of greenhouse gases. This investment not just only can promote the utilization of renewable energy in power, it also could greatly change the character of the palm oil industry due to matured and emerging technologies for renewable energy. We also plan to developing others business ventures with JKR in order to value adding our core business activities. The reusable palm kernel shells can be used by JKR for road hardening.
Besides, we can also invite environmental association such as NGOs to invest in this project as this is a golden opportunity to eliminate waste product and generate electricity by using palm oil. We can also encourage Biomass power plant; organic diesel plant as well as biodiesel plant comes to invest.
TH Plantation and Harbour Link
TH Group is the holding company of the TH Plantation. Besides the TH Plantation, there have another three principle division in the TH Group include contracting, biohealthcare division, and information technology. The main purpose of the contracting division is involved in coal mining contracting services, design and build, civil and infrastructure construction projects. For biohealthcare division, the operation is involved hospital and pharmacy. Healthcare division is the forth care business of TH Group. It consist NCI Cancer Hospital in Nilai, Negeri Sembilan, a pharmaceutical distribution unit under Asiaprise Pharma Sdn Bhd. Moreover, biohealthcare division also invests in biotechnology ventures. The last one is information technology division. This division is operating in sales, implementation as well as research and development of oil palm plantation and milling software.
Even though TH Group has various divisions in their corporation, TH Group still has ability and space to improve as well as expand its corporation. As we already know, TH Plantation is focus on palm oil that need much effort and cost on the logistic. Every year, the fund that use on logistic is take a big portion on the cost of the TH Plantation. In order to expand externally of firm, mergers with a logistics company is practicable. It can be say as a vertical merger which TH Plantation acquires its supplier. With the logistics operation, TH Plantation can be more efficient and effective in shipping and manage their inventory.
The company that will merger with TH Plantation is Harbour Link Group Berhad. Harbour Link Group Berhad is a success and as a leadership position in its strong 30 years foundation industry expertise. It has ability to fulfill its clients need though a broad spectrum of integrated logistics and supply chain services. The reputation of the Harbour Link Group Berhad is acclaimed. It can be say as a trust company and it always help the big corporation to do logistics operation such as Shell. The services provided by the Harbour Link are various which included land transportation, freight forwarding, warehousing, heavy haulage, heavy lifting, equipment leasing service, packing and removal service, international network and standard trading condition of FMFF. Beside this, Harbour Link also provides shipping and marine service. Due to the increase case of road accident, Harbour Link provided advanced driver training and road safer consultancy to increase the awareness of the road safer.
After Harbour Link merger with TH Plantation, the named will remained as TH Group. This merger will bring a variety advantages to the TH Plantation. The main advantage is TH Plantation can be the top three most efficient and lowest producing plantation companies in the country. THP merger to Logistics Company can save the cost of THP on shipping and warehouse. It is directly reducing the producing cost on the plantation and let the THP become the top one in Malaysia even in the world. Moreover, TH Plantation has their own logistics managerial skill and technology can make their shipping and inventory more easily than before. This logistics managerial skill also can use in other division in TH Group such as contracting division. From the financial statement 2009 of Harbour Link, we know that it is a stable company in their financial. The key element of the Harbour Link's strategy has been to maintain a strong balance sheet to ensure that they have sufficient fund to support their investment and fund organic growth. Hence, Harbour Link does not much effect on economic downturn. The stable of financial statement and profit available to shareholders will maximize the wealth of shareholders. In addition, THP merger with Harbour Link also can achieve synergy in operation where synergy is the economies of scale resulting from the merged firm's lower overhead. It can reduce and avoid the unnecessary cost. Let say 1+1=2. The total value of firm after mergers is greater than their simple arithmetical sum. The mergers of THP and Harbour Link also their fund-raising ability and increase the share price of the THP. The share price will be increase because this is the big news in the plantation industry and bring a lot of profit to the TH Plantation. Besides save cost of logistics in THP, Harbour Link also continues does logistics management for other corporation. The revenue from the logistics management or any other activity does by Harbour Link will bring extra profit for THP. Furthermore, this type of mergers enhances the position and increases the competitive of THP in the market. The merger with a logistics company can take competitive advantages in plantation industry compare with other plantation industry such as Sime Darby and IOI Corporation.
TH Plantation and Paos Holdings Berhad
Just like what have mentioned, TH Plantation have another three principle division in the TH Group include contracting, biohealthcare division, and information technology. TH Plantation already expert in agriculture sector (plantation), this is a golden opportunity for them to enlarge their business sector by restructure its corporation by adding in oil palm based products division. That means TH Plantation not only as a supplier in palm oil but also as a producer in palm oil based products. We suggest TH Plantation merge with Paos Holdings Berhad to become TH Oil Palm Product.
Paos Holdings Berhad's business is manufacturing and export of a wide range of palm oil-based products. Among the products manufactured are soap (liquid and hard); superolein which is a high quality cooking oil; palm mid-fraction (PMF) which is used in the production of chocolate and chocolate-based products and hard stearin which is used in the production of animal feed. They also directly involved in the production of soap noodles (raw materials for soap making) and their by-products such as glycerine, are used to make toothpaste, paint products and pharmaceuticals.
This is a vertical merger where TH Plantation(supplier) can supply palm oil to Paos Holdings Berhad(customer) to make the products. There are varies of advantages for TH Oil Palm Product if this merge is successful. First, they able to increase its managerial and technology skill and also cost saving at the same time because Paos Holdings Berhad equipped with automated production plant with the most up-to-date technology. Besides, their production lines are very efficient and are capable of catering to different specifications of moulds and packaging. Due to this highly automated feature, labour cost will be comparatively low. This merge for sure enable fund raising ability for both corporation(TH Plantation and Paos Holdings Berhad). After merge, corporations image can be improve and public will be more confident on these two corporations. As a result, more and more people will buy the share of these two corporations and therefore maximizing owner's wealth.
CONCLUSION
Implement any type of project or merger need to depend on the particular corporation's current financial status and desirable results that wish to get. Study deeply and make research are very important before implement any project and merger. Take note that any mistaken that made may cause the corporation faced bankruptcy. Bear in mind that only implement those projects or merger that generate greater profit to the corporation. It is great if the projects or merger able to gear up the corporation's profit.
As a finance student, it is great if we try to explore any type of new assets / projects and any type of merger for different corporations. Maybe one day in the future, we become one of the corporation's financial executive or financial analyst then we can introduce those assets and merger to the corporation. Anyone who choose TH Plantation as their company can keep the ideas on new projects and merger, who know maybe some days later, we have the opportunity to introduce it to TH Plantation.
