• Genting Plantations (GenP) has agreed to terminate the sale and purchase agreement with Elevance Renewable Sciences Singapore Pte Ltd for a 25% stake in Genting Biorefinery Sdn Bhd.

• Elevance acquired the 25% stake in Genting Biorefinery Sdn Bhd for RM72mil from GenP in FY14.

• Genting Bhd owns 47.8% of Elevance Renewable Sciences Singapore.

• GenP will return the original net purchase consideration of RM64mil (RM72mil less amount owing of RM8mil) to Elevance. Also, Elevance will return RM64mil, which GenP paid as design fees, back to GenP.

• Elevance has decided to exit its investment in Genting Biorefinery as it is currently undergoing a restructuring exercise. As such, Elevance would not be able to undertake further capital commitment in Genting Biorefinery.

• There is no impact on GenP as Genting Biorefinery’s earnings are small. Genting Biorefinery’s net profit was RM1.4mil in FY18. GenP’s shareholding in Genting Biorefinery will increase to 100% from 75% after buying back the 25% stake from Elevance.

• Genting Biorefinery owns a biodiesel plant in Lahad Datu. The plant has a capacity of 200,000 tonnes per year. Currently, GenP is producing biodiesel at the plant for exports and the B20 biodiesel market in Sabah.

• The original plan was to convert the biodiesel plant into a plant producing palm oil derivatives, which will compete with petrochemicals. We believe that the plan did not take off as it is difficult to find off-takers.

• GenP sold an estimated 120,000 tonnes of biodiesel in FY19 compared with 40,000 tonnes in FY18. The sales volume of 120,000 tonnes translate into an average utilisation rate of 60% for the biorefinery plant.

• Net book value of the biorefinery plant was RM79.1mil as at end-Dec 2018. GenP’’s original cost of investment in the plant was RM248mil in July 2014.

• Maintain SELL on GenP with a fair value of RM10.08/share.

Source: AmInvest Research - 13 Feb 2020