- Bloomberg reported that the Cabinet has approved the implementation of B7 in stages beginning November 2014 for Peninsular Malaysia and by December for East Malaysia.

- According to a statement from the Plantation Industries and Commodities Ministry, B7 is expected to absorb about 575,000 tonnes of palm oil from the system.

- We are neutral on this development. Execution is key to the implementation of B7.

- In Peninsular Malaysia, we reckon that there will no issues as B5 was already implemented.

- Hence, the infrastructure, bulking facilities and distribution are already in place.

- In East Malaysia, the implementation of B5 was delayed due to infrastructure and pricing issues.

- We think that East Malaysia would look towards implementing B7 instead of ramping up capacity from B5.

- B7’s absorption of 575,000 tonnes of palm oil from the system is not expected to be significant as it only represents 2.9% of Malaysia’s CPO production of 19.5mil tonnes estimated for 2014F (2013: 19.2mil tonnes).

- We believe that B7 would be subsidised by the Malaysian government. Due to the fall in crude oil prices, we reckon that fossil fuel is cheaper than CPO.

- On a per tonne basis, price of Brent crude oil is RM2,045 currently compared with CPO price of RM2,222.

- Incidentally, Felda Global Ventures has shipped 6,000 tonnes of palm methyl ester or biodiesel to Guangzhou. The shipment was brokered by Gunvor Geneva. The second consignment of 6,000 tonnes is expected to arrive in Guangdong at the end of October 2014.

- Maintain NEUTRAL on the plantation sector.

Source: AmeSecurities