- Genting Plantations Bhd (GenP) has proposed to sell a 25% stake in its biodiesel subsidiary, Genting Integrated Biorefinery Sdn Bhd to Elevance Renewable Sciences Singapore Pte Ltd for RM72mil.

-  Genting Integrated Biorefinery has a biodiesel plant, which has a capacity of 200,000 tonnes per year.

-  Elevance Renewable Sciences is a subsidiary of Elevance Renewable Sciences Inc, which is 16% owned by Genting Bhd.

-  Tan Sri Lim Kok Thay is a director in Elevance. We reckon that this is a related party transaction.

-  Apart from the proposed disposal, GenP will be signing a Licence and Catalyst Supply Agreement and a Project Design and Consultancy Agreement with Elevance.

-  GenP will pay a design and licence fee of RM89.5mil to Elevance for its metathesis technology, which will be used to produce and sell high value palm oil derivatives. The biodiesel plant will be used to produce high value palm oil derivatives by FY17F.

-  We are neutral on this development. Downstream activities are not a major part of GenP’s operations.

-  Last year, GenP’s biodiesel division generated revenues of about RM33.7mil. The unit broke even in terms of profits.

-  There is no gain or loss on disposal of the 25% stake in the biodiesel subsidiary. GenP is selling the 25% stake at its net book value.

-  GenP has a biodiesel production capacity of 300,000 tonnes per year in total. In addition to Genting Integrated Biorefinery, GenP has another biodiesel plant, which was purchased in February 2014.

-  GenP acquired SPC Biodiesel for RM33mil from SPC Plantations Ltd, which is listed on the Australia Stock Exchange. SPC Biodiesel has a production capacity of 100,000 tonnes per year. Maintain SELL on GenP.

Source: AmeSecurities