GENP has acquired SPC, a 100,000 tonne biodiesel plant in Lahad Datu,for  MYR33m.  We  believe  the  acquisition  price  is  reasonable,  being slightly  cheaper  than  FGV’s  May  2013  purchase  of  a  similar-sized biodiesel plant in Kuantan. We believe this is part of its  plan to develop its downstream segment via the production  of specialty chemicals with a joint venture partner. Maintain NEUTRAL and MYR11.00 FV.

• Acquires  biodiesel  plant.  Genting  Plantations  (GENP)  acquired  the entire  equity  interest  of  SPC  Biodiesel  SB  (SPC)  for  a  total  cash consideration of MYR33m from  ASX-listed  Sterling Plantations  (SBI AU, NR). SPC is principally involved in the manufacturing and sale of palm  oil biodiesel.  The  acquisition  is  in  line  with  GENP’s  objective  of  venturing into downstream activities related to palm oil.
• Acquisition  price  reasonable.  We  understand  this  biodiesel  plant  is located in  the  Lahad Datu  Palm Oil Industrial Cluster in  Sabah and  has an annual  capacity of 100,000 tonnes. Based on this price, GENP paid MYR330/tonne of biodiesel capacity. While this is more expensive than what  was paid  for  its first  200,000 tonne  biodiesel plant in Lahad Datu (acquired  in  May  2011  for  approximately  MYR200/tonne),  we  highlight that  this  is still  slightly  lower than the price Felda Global   Ventures  (FGV MK,  BUY, FV: MYR5.20) paid for its biodiesel plant  in Pahang, which  it acquired in April 2013 for approximately MYR350/tonne. Given the better margins obtained from producing biodiesel currently and  Europe’s antidumping duty on Indonesian biodiesel, the demand for biodiesel plants is rising and, as such, we deem the acquisition price as reasonable.    
• Likely  used  for  specialty  chemicals  production.  That  being  said,  in the longer-term,  we believe GENP is not likely to use its two biodiesel plants  to  produce  biodiesel.  Instead,  they  will  produce  specialty chemicals,  as  detailed  in  our  previous  report  (Genting  Plantations  -Company Update dated 10 Feb 2014).
• NEUTRAL  maintained.  No  changes  made  to  our  forecasts,  as  we  do not expect this acquisition to have a significant impact on earnings at this juncture.  We  understand  that  the  plant  is  currently  idle  and  may  take some  time  to  start  running  again.  Maintain  NEUTRAL  and  SOP-based MYR11.00 FV.

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Source: RHB