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

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD

Research House: AMMB

Price Call: BUY

Target Price: 10.65

- Genting Plantations Bhd (GenP) has entered into a jointventure with Global Agrindo Investment Company Ltd and Global AgripalmInvestment Holdings Pte Ltd to develop and cultivate about 74,000ha of oil palmplantations in Central Kalimantan, Indonesia. The landbank of 74,000ha alreadyhas the 'Hak Izin Lokasi' permit.

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

- We view this development positively as the proposed jointventure would increase GenP's landbank in Indonesia and help sustain thegroup'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 aboutUS$2,613/ha or RM7,995/ha. 

- This is higher than TH Plantation's cost of acquisition ofRM1,186/ha for its 14,180ha of land in East Kalimantan and CB IndustrialProduct Holding's (CBIP) cost of RM703/ha for its 22,754ha of land in CentralKalimantan. It has to be noted that CBIP's landbank did not have the 'Hak IzinLokasi' permit at the time of the announcement.   

- We believe that GenP is paying a premium for its landbankin 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 wouldincrease GenP's landbank in Indonesia from 100,254ha to 174,254ha. IncludingMalaysia, GenP's landbank would amount to 239,950ha in total.   

- Financing the equity cost of the joint venture is notexpected to be a problem for GenP as it has net cash of RM589.8mil as atend-December 2011.

- As at end-FY11, GenP has planted areas of 33,922ha inIndonesia. The group plans to plant oil palm on 7,000ha to 8,000ha in FY12F. InFY12F, GenP's FFB production is forecast to rise 8% to 9%, out of whichIndonesia is expected to account for about 6 percentage points. 

- We maintain a BUY on GenP due to its long-term growthpotential underpinned by its operations in Indonesia. GenP is also one of thelowest producers of palm oil with an operating cost of RM1,000/tonne toRM1,100/tonne.    

Source: AmeSecurities