Genting Plantations - Enters into JV to develop 74,000ha of land BUY

- Genting Plantations Bhd (GenP) has entered into a joint venture with Global Agrindo Investment Company Ltd and Global Agripalm Investment Holdings Pte Ltd to develop and cultivate about 74,000ha of oil palm plantations in Central Kalimantan, Indonesia. The landbank of 74,000ha already has the “Hak Izin Lokasi” permit.

- GenP will hold an effective stake of 60% in the joint venture. GenP would be paying about US$116mil (RM355mil) for its 60% shareholding in the joint venture. 

- We view this development positively as the proposed joint venture would increase GenP’s landbank in Indonesia and help sustain the group’s long-term profitability.  

- Based on the effective stake of 60% in the joint venture, GenP’s cost of acquisition of the landbank in Indonesia would come up to about US$2,613/ha or RM7,995/ha. 

- This is higher than TH Plantation’s cost of acquisition of RM1,186/ha for its 14,180ha of land in East Kalimantan and CB Industrial Product Holding’s (CBIP) cost of RM703/ha for its 22,754ha of land in Central Kalimantan. It has to be noted that CBIP’s landbank did not have the “Hak Izin Lokasi” permit at the time of the announcement.   

- We believe that GenP is paying a premium for its landbank in Central Kalimantan due to its large size. Also, about 14,150ha of the land (Inti) has already been planted with oil palm. The proposed acquisition would increase GenP’s landbank in Indonesia from 100,254ha to 174,254ha. Including Malaysia, GenP’s landbank would amount to 239,950ha in total.   

- Financing the equity cost of the joint venture is not expected to be a problem for GenP as it has net cash of RM589.8mil as at end-December 2011.

- As at end-FY11, GenP has planted areas of 33,922ha in Indonesia. The group plans to plant oil palm on 7,000ha to 8,000ha in FY12F. In FY12F, GenP’s FFB production is forecast to rise 8% to 9%, out of which Indonesia is expected to account for about 6 percentage points. 

- We maintain a BUY on GenP due to its long-term growth potential underpinned by its operations in Indonesia. GenP is also one of the lowest producers of palm oil with an operating cost of RM1,000/tonne to RM1,100/tonne.    

Source: AmeSecurities