Genting Plantations joins the big boys

It is now a full-fledged integrated planter

GENTING Plantations Bhd has finally joined the league of other vertically integrated top palm oil companies such as IOI Corp Bhd , Sime Darby Bhd and Kuala Lumpur Kepong Bhd following its recent maiden venture into the palm oil refinery business with Singapore-based global refiner, Musim Mas Group.

Industry observers describe the venture as timely because it could help to reduce the high exposure to the volatile fluctuations in the crude palm oil (CPO) prices, which are trending lower to trade below RM2,200 per tonne currently.

This explains why many upstream plantation players in Malaysia, including Genting Plantations, which produces mainly CPO, are inclined towards setting up refineries, which could provide steadier recurring income from value-added palm oil based products.

Genting Plantations president and chief operating officer Yong Chee Kong tells StarBizWeek that the palm oil refinery that the group is setting up “is not solely for producing refined palm oil products for sale on a standalone basis.”

“Instead, it will be a component of the group’s larger Genting Integrated Biorefinery Complex which is now being constructed in the Palm Oil Industrial Cluster (POIC) Lahad Datu, Sabah which is in the same vicinity as the proposed refinery collaboration with Musim Mas.”

The Genting Integrated Biorefinery Complex comprises several components, including the palm oil refinery and a metathesis biorefinery that is being established in collaboration with US-based Elevance Renewable Sciences, Inc.

As at to date, the two facilities, namely the refinery and the metathesis biorefinery, are progressing on schedule, adds Yong.

The biorefinery produces high-value chemical streams similar to petroleum-based refineries.

Refinery boost

As for its latest venture with Musim Mas, Genting Plantations will set up a RM300mil refinery, which is scheduled to be completed in the second half of next year.

“This palm oil refinery is intended to provide a constant source of feedstock supply in the form of refined, bleached and deodorised palm olein to the metathesis biorefinery.

“This will enable the group to establish a seamless end-to-end process for the production of high-value specialty chemicals, olefins and other high-value palm oil derivatives.

“Likewise, the palm oil refinery will also serve as a feedstock inlet for our biodiesel operations in Lahad Datu,” Yong explains.

On the potential contribution by the refinery to the earnings’ of Genting Plantations, he says that: “The palm oil refinery is part of the larger Genting Integrated Biorefinery Complex.

“As such, any eventual contribution to the overall Group’s financial performance is to be viewed in the context of the Genting Integrated Biorefinery Complex project in its entirety.”

According to Yong, Musim Mas Group is chosen as its partner given its reputation as a market leader and global player in palm oil-related downstream business and operations.

Besides having substantial assets in Indonesia, Musim Mas has presence in 11 other countries across Asia, Europe and the United States.

Yong adds that “their technical and operational expertise along with their established marketing and distribution network will complement our group’s upstream base and knowledge of operating in the Malaysian palm oil space to ensure a mutually-beneficial and successful collaboration.”

He also says Genting Plantations is open to consider other opportunities for more collaborative ventures with Musim Mas especially where both parties’ respective strengths can be combined for mutual benefit.

Besides the collaboration for the setting of a palm oil refinery, Yong adds that the group has had a pre-existing commercial relationship with Musim Mas Group in the sale and trading of palm products.

Synergistic collaborations

Industry expert MR Chandran says being an integrated plantation player is the way to go for pure upstream players like Genting Plantations where the palm oil refinery will fit in nicely with the Genting Group’s biorefinery complex and its existing biodiesel plants in Sabah.

“While Genting Plantations may not be a heavy-volume CPO producer like Felda Global Ventures Holdings Bhd or Sime Darby, but it can become an integrated player with commendable downstream operations like Wilmar Group or Musim Mas,” adds Chandran.

Public Investment Bank, in its latest report, also says the synergistic tie-up would enable Genting Plantations to ride on Musim Mas Group’s vast experience in the refining industry as one of the biggest players in the vegetable oil refining and soap manufacturing industries in Indonesia.

On the other hand, Musim Mas could expand its venture into the Malaysian palm oil industry via its tie-up while also tapping on Genting Plantations’ strong plantation footprint in Malaysia.

CIMB Research in its latest report says it is not surprised by Genting Plantations’ move to operate a refinery as “the group had indicated to us its ambition to move downstream to raise the value-add of its palm oil produced.”

Genting Plantations owns two biodiesel plants in Sabah and had also entered into a collaboration with Elevance Renewable Sciences, a specialty chemicals company, to build a 240,000 tonne biorefinery in Lahad Datu, Sabah

The research unit points out that the proposed refinery will be able to process CPO from Genting Plantations’ mills and estates, and the refined products will be partly sold to the group’s biorefinery when it comes on-stream in the third quarter of 2017 and biodiesel plant.

Currently, Genting Plantations’ mills in Sabah produced around 260,000 tonnes of CPO per annum and will be able to supply around 43% of the feedstock for its proposed refinery.

CIMB Research is positive on Genting Plantations’ initiatives to be more integrated with plans to raise value-add products.

However, the research unit does not expect the latest development to significantly impact its earnings as “the refinery will only be ready in second half of next year and may take time to be profitable.”

RHB Research views Genting Plantations’ refinery plant positively in the longer term as the refinery is necessary to produce the feed stock for the group’s speciality chemical products at its 240,000 tonnes integrated biorefinery complex.

The unit is recommending a “buy” call on Genting Plantations but makes no changes to its forecasts as the refinery would be ready by end-2016 while the specialty chemicals plant would be completed by 2017.

Genting Plantations