Genting Plantations investing downstream big time

KUALA LUMPUR: Genting Plantations Bhd's plans to partner the world’s largest refiner Musim Mas Group to set up a RM300 million palm oil refinery in Sabah is well-received.

Public Investment Research (Public Invest) said this marks the maiden refining venture for Genting Plantations, which will eventually see the group shifting from being a pure upstream plantation player to an integrated one.

"We laud Genting Plantations's move as it can reduce the group's high exposure to the fluctuation of crude palm oil prices and help provide steadier recurring income in the future," Public Invest said in its notes to investors.


Public Invest rates Genting Plantations' stock as "outperform" with a RM11.73 target share price from RM10.00 at present.

Both parties will set up a joint venture called Alfa Raya Development Sdn Bhd, with Genting Plantations and Musim Mas owning a 72 per cent and 28 per cent stake, respectively.

The refinery, which will be completed by the second half of 2016, will have 600,000 tonnes of production capacity per annum.

"This will be a synergistic tie-up as Genting Plantations can ride on Musim Mas' vast experience in the refining industry. 

"Musim Mas is one of the biggest players in the vegetable oil refining and soap manufacturing player in Indonesia and it also owns the largest palm oil refinery in the world," it said.

This tie-up allows for Musim Mas to expand its footprint in Malaysia's palm oil industry, having bought over a biodiesel plant in Johor last year.

Genting Plantations chief executive Tan Sri Lim Kok Thay said this refinery will be part of the group's Integrated Biorefinery Complex in the Palm Oil Industrial Cluster in Lahad Datu. 

Indeed, Genting Plantations is investing big time in the downstream value chain to produce higher-margin products.