Genting  Plant  announced  on  6  March  2015  that  it  had  entered  into  a collaboration with the Musim Mas Group to establish  a palm oil refinery in Palm Oil Industrial Cluster, Lahad Datu, Sabah. An agreement was signed for Musim Mas Group to take a 28% interest in Alfa Raya Development, the entity  for  the  collaboration.  Genting  Plantations  holds  the  remaining  72%. The  refinery,  which  will  require  an  investment  of  approximately  RM300m, will have a capacity of 600,000 MT p.a. or 1,800 MT per day and is targeted for completion in 2H16.(Source: Company)

Comments: Even though refining margins are poor currently, establishing its own refinery is the right move for GENP in the long term given the rising production  from  its  Malaysian  and  more  so,  Indonesian  estates.  The refinery  will  be  part  of  the  larger  Genting  Integrated  Biorefinery  Complex that  the  group  is  setting  up  for  the  production  of  high  value-added downstream  products.  Based  in  Singapore,  the  Musim  Mas  Group  is  a renowned leader in the refining business, owning one of the largest palm oil refinery networks in the world, including a fleet of ship tankers and barges as well as a network of tank and bulking installations at major ports across Indonesia  and  other  parts  of  the  world.  As  such,  we  expect  the  JV  to  be mutually beneficial for both GENP and Musim Mas Group.

As  at  31  December  2015,  GENP  had a cash reserve  of  RM1,077m,  total borrowings  of  RM1,027m  and  a  gross  debt-equity  ratio  of  less  than  0.3x. Equity and debt funding for the JV is therefore not expected to be an issue. Maintain  our  target  price  and  rating  for  GENP  (HOLD  TP RM10.65).

Source: Affin Hwang Capital Research - 9 Mar 2015