We are positive on Genting Plantations’ disposal of a 25% stake in itsbiodiesel plant and collaboration with a US-based specialty chemicalcompany. Not only are the valuations for its biodiesel plant 7x morethan its original acquisition price, but we understand that the specialty chemical products it will produce typically yield high double-digit margins. No changes to our forecasts and maintain our BUY recommendation.

• Enters into disposal and collaboration agreements.  Genting Plantations (GP) is proposing to dispose of a 25% stake in Genting Integrated Biorefinery S/B (GIB) to Elevance Renewable Sciences Singapore Pte Ltd (ERS) for MYR72m. ERS is a wholly-owned subsidiary of US-based Elevance Renewable Sciences, Inc. Both parties also entered into a sales and purchase (S&P) agreement as well as a master agreement for collaboration to produce high-value palm oil derivatives such as olefins, specialty chemicals and saturated methyl esters. This agreement involves GP paying ERS USD28.05m (MYR89.48m) for a licence for its patented metatheses technology as well as for its project design and technology transfer. An ancillary agreement would also be executed to facilitate the operations of the metathesis plant covering offtake, marketing and provision of management services. The metathesis plant refers to GP’s 200,000-tonne biodiesel plant in Lahad Datu, Sabah, which will be transformed to produce high-value palm oil derivatives. The plant is expected to commence operations by 2017.
• High valuation for its biodiesel plant. Based on the MYR72m price-tag for the 25% stake in its biodiesel plant, GP is valuing its biodiesel plant at MYR288m, which is 720% more than the around MYR40m it paid when it bought the plant in May 2011. On a net basis, GP would have to fork out MYR17.48m for the technology transfer. Given that it has also signed an offtake agreement with ERS, we are not concerned about GP’s ability to sell the high-value palm oil derivatives subsequently. We understand that margins for these products are much higher than oleochemicals and specialty fats, which generally only garner single-digit margins.
• Overall, we are positive on this proposal,as it would enable GP to produce high-value specialty chemicals which have not been produced in Malaysia before. As the retrofitting would take up to 2017 to complete, we do not expect this to have any effect on our forecasts. No changes to Our BUY call and MYR13.35 FV.

Source: RHB