The MARC-1 BG rating assigned to YPJ Oil Palm Estate Sdn Bhd’s (YPJOPE) proposed RM180 million Guaranteed Commercial Papers reflects the unconditional and irrevocable guarantee provided by a consortium of financial institutions comprising Affin Merchant Bank Berhad, Affin Bank Berhad and Bumiputra-Commerce Bank Berhad.

Despite the inherent volatility in commodity price of crude palm oil (CPO) with limited ability of the producing countries to influence price movements, the fundamentals of palm oil remain strong premised on strengthening world demand for edible oils and fats which is expected to rise sharply over the next two decades in line with growing world population and per capita consumption of the two largest palm oil importers, China and India.

YPJOPE is principally involved in the cultivation and management of palm oil estates. Currently, YPJOPE manages its own 25,722 acres or approximately 10,585 hectares of palm oil estates known as Ladang YPJ, Ladang Yayasan, Ladang Alaf (which are located in Kulai) and Ladang Payamunis located in Mersing. As at February 2005, matured palm oil occupied 85% of total planted area or 8,027 hectares, of which over 70% are matured trees between the age of 15 to 17 years. The balance comprises immature fields
of less than four years old and there are no over-aged palms. YPJOPE’s sole mill has an installed processing capacity of 30MT/h and is currently operating at over 90% capacity.

YPJOPE’s revenue rose to RM88.5 million in FY2004 from RM84.4 million previously, representing approximately 5% growth. Operating profit margin chalked up a better performance at nearly 40% (FY2003: 34%), aided by higher average CPO prices.

Sales of FFB and CPO will continue to be the two main contributors towards total revenue. Assuming an average CPO price of RM1,400 over the tenure of the CP facility, YPJOPE’s annual gross profit margins are projected to remain comfortable at above 30% for the next seven years.

YPJOPE’s financial flexibility is mainly drawn from YPJ Corporation Sdn Bhd, its parent/holding company which extended an unsecured term loan in excess of RM100 million. With the proposed listing exercise to be completed in fiscal 2005, its debt leverage is expected to decrease substantially based on the newco’s pro-forma share capital of RM230 million. Future cash flow is expected to significantly improve from FY2005 onwards as the CP facility coupled with the concurrent listing exercise will enhance YPJOPE’s liquidity.