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11 March 2011

Food Producers

Palm Oil Extracting Value

Rachel Galvez +44 20 7444 0679 rachel.galvez@religarecm.com Palm Tree Nursery

Palm Oil Sector Extracting Value We launch coverage on the London listed Palm Oil sector with a positive view as we believe the industry will continue to grow and current production will struggle to meet global demand. In our view, companies (such as the ones under our coverage) that have; agricultural land rights in equatorial regions (where oil palms thrive), industry expertise, experienced management teams, and access to capital, have defensible competitive advantages and are likely to experience earnings growth and margin expansion going forward. New Britain Palm Oil (NBPO LN, BUY, 1,197p price target, 23% upside) NBPO produces sustainable and traceable Palm Oil in Papua New Guinea (PNG), which it sells to European markets. We believe the companys competitive advantages, (the traceability and sustainability of its oil, above industry average yields, land and other assets, management team and industry relationships) will enable it to increase sales, expand margins and maintain a market leading position going forward. Asian Plantations (PALM LN, BUY, 345p price target, 29% upside)

Source: MP Evans

Palm Tree Plantation

Asian Plantations is involved in the acquisition and development of Palm Oil plantation land in Sarawak, Malaysia. We believe the company will be able to execute on its strategy (acquiring undeveloped land and selling it when it reaches full maturity) given its competitive advantages (land rights, mill technology and management) and its track record since listing on AIM in November 2009. Equatorial Palm Oil (PAL LN, BUY, 38p price target, 28% upside) Equatorial Palm Oil is involved in the acquisition and development of Palm Oil plantation land in Liberia, West Africa. In our view, the shares trade at a significant discount to Asian plantations and the developed peers due to execution and political risk, both of which we believe the market is over estimating. We believe execution risk has greatly diminished since the companys AIM listing last year as the company has met many of its operational and financing objectives ahead of schedule. Furthermore, in our view, economic and political risks, stemming from producing in Liberia, have also been reduced evidenced by an influx of foreign investment. MP Evans (BUY, 545p price target, 17% upside) MP Evans owns and operates Palm Oil plantations through associates and subsidiaries in Indonesia and Malaysia. The group also has beef cattle interests in Australia through its 34% share in the North Australian Pastoral Company and a 100% stake in Woodlands Aggregation. We expect growth in the Palm Oil business to be driven by new planting programs, the commissioning of a new mill and improvements in yields. Growth in the cattle business is likely to come from increased capacity given the inherent economies of scale in the cattle business. Additional value is likely to be realised from asset disposal, (estimated to be worth US$90mn).

Source: MP Evans

Palm Oil

Source: Anglo Eastern Plantations

UK | USA | Dubai | Indonesia | India | Brazil | Singapore | Hong Kong | Japan

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Palm Oil Extracting Value

| 11 March 2011

Table of contents
Sector Report
Why we like Palm Oil Palm Oil Basics Supply/Production of Palm Oil Demand/Consumption of Palm Oil Geographies 3 8 12 17 22

New Britain Palm Oil


Investment Case Company Valuation Company Forecasts and metrics Company overview Industry overview Board and Management 29 30 33 34 36 37

Asian Plantations
Investment Case Company Valuation Company Forecasts and metrics Company overview Industry overview Board and Management 39 40 44 46 48 49

Equatorial Palm Oil


Investment Case Company Valuation Company Forecasts and metrics Company overview Industry overview Board and Management 51 52 55 56 58 59

MP Evans
Investment Case Company Valuation Company Forecasts and metrics Company overview Industry overview Board and Management 62 63 66 67 68 69

Palm Oil Extracting Value

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Why we like Palm Oil


CPO plantations are renewable assets Unlike oil & gas or metals & mining assets, the oil palm is a perpetual asset. Oil palms continue to produce fruit perennially (assuming there is ample rain and sun) for 20-30 years.

Low cost of production versus other edible oils Cost of production is estimated to be US$250-US$350/tonne (c. 50% lower than soybean oil) due to higher yields. Although upfront capital costs (estimated to be c. US$6,500 per hectare in Southeast Asia but dependent on the cost of land) are considerable, replanting costs (c. US$2,500/ha) are low when amortised over the life of the plant (20-30 years).

Demand is defensive but not cyclical Edible oil consumption is supported by population growth and an increase in disposable income (please refer to Demand section for more details)

Considerable barriers to entry (please refer to supply section for more details) Plantable land is scarce and expansion has been restricted due to environmental concerns Some industry participants maintain that no other crop has such strict criteria for sustainability (which is to the benefit of producers who have RSPO membership & certification)

Once land is mature, it is a very cash generative business

Palm Oil Extracting Value

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Why we like the London listed Palm Oil Producers


Listed Palm Oil producers are usually compared to each other on an EV/mature hectare basis. Although this metric does not take into account other assets the company may have (such as refineries), other products the company may produce, the level of vertical integration and the age of the estates, it is a useful ratio for general comparative purposes. We believe the London listed producers are attractive as they are currently trading at a 27% discount to their Asian peer group.

Exhibit 1: The Palm Oil Universe


Asian listed Wilmar International Ltd Sime Darby IOI Corp Kuala Lumpur Kepong Golden Agri-Resources Indofood Agri Resources Genting Plantations United Plantations Hap Seng IJM Plantations Sarawak Oil Palms United Malacca Far East Holdings Unico-Desa Plant Chin Teck Plant Kwantas Corp Average Mkt Cap US$mn 26,637 18,007 12,617 7,339 6,400 2,598 1,974 1,201 777 744 501 458 337 300 259 222 EV US$mn 29,633 19,022 13,984 7,617 5,713 2,598 1,848 1,037 770 674 522 416 327 331 198 428 Plantation location Malaysia & Indonesia Malaysia & Indonesia (land in Liberia) Malaysia Malaysia Indonesia (land in Liberia) Indonesia Malaysia & Indonesia Malaysia & Indonesia Malaysia Malaysia & Indonesia Malaysia Malaysia Malaysia Malaysia Malaysia & Indonesia Malaysia Mature hectares 235,000 531,000 251,000 144,977 442,500 130,510 54,000 32,000 33,000 23,000 30,000 14,000 14,000 12,000 12,000 14,000 EV/ha (US$) 126,099 35,824 55,714 52,538 12,911 19,903 34,227 32,415 23,346 29,284 17,399 29,681 23,356 27,557 16,508 30,564 35,458

London listed New Britain Palm Oil REA Holdings Anglo-Eastern Plantations MP Evans Group Narborough Plantations Average

Mkt Cap US$mn 2,283 389 495 401 16

EV US$mn 2,254 770 512 414 12

Plantation location Papua New Guinea Indonesia Indonesia Indonesia (Australian cattle) Malaysia

Mature hectares 78,000 22,000 35,000 14,071 555

EV/ha (US$) 28,897 35,012 14,629 29,422 21,657 25,923

Source:

Bloomberg RCM

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The Crude Palm Oil (CPO) Price


Exhibit 2: The CPO Price US$/MT
$1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10
1,300

Source:

Bloomberg

While we recognise that the CPO price, like many commodities, is difficult to predict, we believe Palm Oil prices will continue to be above their historic averages given that we expect demand to continue to exceed supply, primarily due to resilient food demand in key markets such as India and China and issues leading to restrictions in supply. Our CPO forecasts are US$1,100, US$1,050 and US$1,000 per MT for 2011, 2012 and 2013 respectively. We also note that Asian listed plantation stocks (which generally trade at a premium to their London-listed peers) have outperformed the CPO price primarily due to operational leverage. The correlation of the London listed Palm Oil producers to the CPO price is indicated in the charts below (we note that many of these companies have a very limited trading history). Exhibit 3: NBPO
NBPO Share price (US$) 16.00 14.00
12.00

Exhibit 4: Anglo Eastern


16.00 14.00 Asian PLantation Share price (US$)

12.00
10.00

10.00 8.00 6.00 4.00 2.00 0.00 300 400 500 600 700 800 900 CPO Price (US$) 1,000 1,100 1,200 1,300 1,400
CPO Price (US$)

y = 0.0129x - 2.8011 R = 0.9015

8.00 6.00 4.00 2.00 0.00 300 400 500 600 700 800 900 1,000 1,100 1,200 1,400 y = 0.009x + 0.7561 R = 0.8291

Source:

Bloomberg

Source:

Bloomberg

Feb-11

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Exhibit 5: MP Evans
12.00 MP Evans Share price (US$)

Exhibit 6: REA Holdings


16.00 14.00 12.00 REA Holdings Share price (US$)

10.00

8.00

10.00
6.00 y = 0.0048x + 2.4201 R = 0.5735

8.00 6.00 4.00 2.00 0.00


300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400

4.00

y = 0.0095x + 1.2176 R = 0.7218

2.00

0.00

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

CPO Price (US$)

CPO Price (US$)

Source:

Bloomberg

Source:

Bloomberg

Exhibit 7: Equatorial Palm


0.65 0.55 0.45 0.35 0.25 0.15 0.05 700 800 900 1,000 1,100 1,200 1,300 1,400 Equatorial Palm Oil Share price (US$)

Exhibit 8: Asian Plantations


6.00 5.00 4.00 3.00 2.00 1.00 0.00 600 700 800 900 1,000 CPO Price (US$) 1,100 1,200 1,300 1,400 Asian Plantations Share price (US$)

y = 0.0005x - 0.2197 R = 0.8352

y = 0.0049x - 2.1332 R = 0.8433

CPO Price (US$)

Source:

Bloomberg

Source:

Bloomberg

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Stock usage ratios


Stock usage ratios, defined as the closing stock, (which is equal to opening stock plus global production less global consumption) divided by total consumption, have been declining and are likely to continue to decline. Exhibit 9: Stock usage ratios are declining and are likely to continue to decline
50 40 19.0% 30 20 18.0% 10 20.0%

mn tonnes

0 07/08 -10 08/09 09/10 10/11F

17.0%

16.0% -20 -30 15.0% -40 -50 Open Stocks Production Consumption Closing Stocks 14.0% Stock Usage ratio % (closing stocks/consumption)

Source:

USDA

Palm Oil Extracting Value

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Palm Oil Basics


History and background
The Palm Oil crop has been grown for over 1,000 years and is native to equatorial West Africa. Seeds were transported to South America through slave trade and South East Asia (where oil palms have thrived due to the climate) on European ships in the 19th century. During the last 50 years Palm Oil production is estimated to have grown by more than 20 times, more than any other crop globally. It is the worlds 2nd largest crop, is the most productive edible oil on the planet (it yields more oil per hectare than any other edible oil) and accounts for c. 30% of the global edible oil production.

What is it used for?


75% of Palm Oil is used in cooking and food products with many processed foods containing Palm Oil. India and China account for more than 30% of global consumption. We highlight population growth and an increase in disposable income in emerging markets as a demand driver, evidenced by Palm Oil consumption CAGRs of 13% and 8% since 1995 in India and China respectively. Palm Oil is also used as an industrial lubricant, in soap products and biodiesel (which still represents a very small portion of total consumption).

How is it produced?
Oil palms grow best in equatorial climates and when they receive ample sunshine and rain. Yields are highest in Malaysia and Indonesia, which together account for 85% of global production. Producers vary in their level of vertical integration. For example, New Britain Palm Oil is completely vertically integrated from the seed business to refining, while Asian plantations, MP Evans and Equatorial Palm purchase seeds from a third party vendor and do not refine all (and in some case any) of the oil but instead sell CPO to refineries. Please refer to the exhibits on the following page, which detail a typical production process.

Palm Oil Extracting Value

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Exhibit 10: Palm Oil production process seeds to harvesting

Seeds - Oil Palms are grown from seeds usually purchased from third party suppliers (with the exception of NBPO). Seeds are planted in nurseries where they grows into seedlings in 9-12 months.

Seedlings - Seedlings are taken to prepared areas and planted. It takes approximately 30 months before palms start producing fruit.

Mature Palms - Mature palms produce fruit throughout the year (assuming there is an optimal amount of rain and sun). Fruits grow in bunches, known as fresh fruit bunches or "FFBs."

FFBs - When FFBs ripen, they are cut by harvesters and the palm is removed.

Fruit - Each FFB has up to 100 "fruitlets" attached to a fibrous base. As bunches ripen, fruitlets loosen and detach. Bunches are harvested after 10 loose fruitlets have detached.

Fruitlets - Each individual fruitlet is made up of a central "endocarp" or nut and an outer "pericarp." The "periscope" consists of a skin and a fleshy pulp surrounding the nut which is known as the "mesocarp." It is the mesocarp that contains crude palm oil. The nut separately consists of an outer shell and a kernel (which contains palm kernel oil).

Harvested Bunches - Harvested bunches and fruitlets are taken to collection points, then transferred to bins. The bins are taken to the mills on lorries.

Source:

REA Holdings

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Exhibit 11: Palm Oil production process Delivery to mills to extraction

Delivery to the mills - Harvested bunches are taken by lorries to the mills, where the lorries unload onto a receiving ramp.

Transfer to cages - Bunches are transferred to cages, each contains 10 to 15 tonnes of fruit.

Sterilisation - Cages are sterilised by pressurised steam for approximately two hours.

Separation of fruitlets - Sterilised bunches are moved on to drums, where individual fruitlets are separated from the fibrous bunch base. Empty bunches are transferred by conveyor to a separate storage area where they are recycled back to the plantation as mulch.

Extraction of palm oil - Once separated, fruitlets are then passed through a screw press which extracts the crude palm oil from the pulp or "mesocarp".

Purification of CPO - Extracted CPO is then purified and subjected to a drying process. It is then stored in tanks adjacent to each mill.

Palm Kernels - The fibre and nuts are separated. The nuts are cracked and the kernels and shells are separated. The kernels are neither sold or transferred to a palm kernel crushing plant to extract palm kernel oil.

Source:

REA Holdings

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Palm Oil End Products


Palm Oil is mostly used in food but has many uses. The diagram below illustrates the various end products and the process required to manufacture these products. Exhibit 12: Palm Oil Products
Fresh Fruit Bunches

FUEL

Palm Kernels

Oil Mill Processing

Fruit Residues

Compost

Kernel Crushing

Crude Palm Oil

Fibre Board

Palm Kernel Meal Refining & Fractionation Palm Kernel Oil

Premium Soaps

Refining & Fractionation

Splitting RDB Palm Oil

Stock Feed

Stearin

Olein RDB Olein Margarines RDB Stearin Palm Fatty Acid Distillate

Confectionery Margarines Creams Coating Fats

Fatty Acids Alcohols Amines

Emulsifiers Explosives

Margarines Shortenings Frying Fats Ice Cream

Shortenings Margarines Soaps

Soaps Detergent

Glycerol

Source:

NBPO

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Supply and Demand Dynamics to support Palm Oil Prices


We believe Palm Oil prices will continue to be above their historic averages given that we expect demand to continue to exceed supply, primarily due to resilient food demand in key markets such as India and China and issues leading to restrictions in the supply of Palm Oil.

Supply/Production of Palm Oil


Global production of Palm Oil is estimated to be approximately 47mn tons and has grown at a 9% CAGR over the last ten years (versus crude oil production which has grown at a mere 1% CAGR over the same period). Exhibit 13: 10 Year Production Volume CAGR
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Palm Oil
Source: Oil World

Soybean Oil

Edible Oils

Crude Oil

Exhibit 14: More Palm Oil is produced than any other major vegetable oil (Production in 000 tonnes)
52000 42000 32000 22000 12000 2000 World Production of Major Vegtable Oils

Palm Oil

Coconut Oil

Palm Kernal Oil

Cottonseed Oil

Rapeseed Oil

Source:

USDA

Groundnut Oil

Soybean Oil

Sunflower Oil

Oilive Oil

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As the chart below illustrates, approximately 85% of Palm Oil is currently produced in Indonesia and Malaysia, therefore export taxes, government policies and weather in these two countries materially impacts global Palm Oil production. Exhibit 15: CPO Production
'000 MT 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
$1,260 $1,320

Malaysia

Indonesia

Other

Source:

USDA

Taxation Export Taxes


In general, higher export taxes restrict production and lead to price increases. Pre-1998 the Indonesian export tax was 60%. When this was reduced to 3% foreign investment in Palm Oil production flooded in and Palm Oil prices fell by c. 40% as a result. In November 2008 the Indonesian government implemented a progressive export tax, whereby the tax imposed is based on the market CPO price (not the price paid to the producing company) ranging from 0 to 25%. This tax is illustrated below. Exhibit 16: Indonesian Export Tax
30% 25% Tax Rate 20% 15% 10% 5% 0% $300 $360 $420 $480 $540 $600 $660 $720 $780 $840 $900 $960 $1,020 $1,080 $1,140 $1,200 $1,380 $1,440 -5% $1,500

CPO Market Price


Source: MP Evans

Tax breaks for biodiesel production


While export taxes generally result in supply reductions and price increases, tax breaks for biodiesel production and usage (something we discuss in more detail in the demand section) are likely to have the opposite effect. Currently, Palm Oil as an alternative fuel does not appear to be high on the agenda for organisations such as the US

2009

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Environmental Protection Agency (EPA) and therefore, these tax breaks are too small to materially impact global production at the moment.

Land
There is a lack of available land in both Malaysia and Indonesia (c. 85% of production) as restrictions on deforestation are imposed and cultivation permits become increasingly more difficult to obtain. This is particularly true in Indonesia (which has an estimated 7mn hectares of oil palm estates), where foreigners are not allowed to own land outright and must apply for thirty year leases from the Indonesian government. For the companies that already have land rights in these countries (among the ones that we cover are MP Evans and Asian Plantations), land access is a competitive advantage but for the industry, lack of land restricts supply and can result in price increases. Given this, companies such as Equatorial Palm Oil, have chosen to focus in regions like West Africa. Although Africa represents a relatively small portion of global production, c. 34% of land allocated for Palms is in Africa. Exhibit 17: Land allocation for Palm Oil
South/ Central America 7% Other 1% Malaysia 27%

Africa 34%

Indonesia 31%
Source: Food and Agriculture Organisation

Sustainability
Arguably as production for Palm Oil has increased so has the pressure on the environment. Issues include deforestation, pollution, endangering indigenous people and species (like the Orang-utans) and safety concerns for workers. To address these issues, the Roundtable on Sustainable Palm Oil (RSPO) was formed in 2004 with the stated objective of promoting the growth and use of sustainable oil palm products through credible global standards and engagement of stakeholders. The RSPO has developed a certification process which ensures that products are produced without undue harm to the environment or society, and, which most publically listed plantation companies have achieved or are in the process of applying for. Furthermore, international sanctions to protect forest area, agrarian people and wildlife and more specifically tightening restrictions on deforestation, have been put in place. Additionally, organisations such as Greenpeace and WWF have put pressure on the food producers and grocery stores (such as Unilever and Sainsbury) to use fully traceable and sustainable Palm Oil. As a result, the market for sustainable Palm Oil has grown, although approximately only 3% of the worlds Palm Oil is sustainable. Supermarkets such as Sainsbury and Marks and Spencer are using sustainable Palm Oil, and many have pledged to use fully traceable Palm Oil by 2015. Producers, such as New Britain Palm Oil have allocated

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capital towards producing 100% traceable and sustainable Palm Oil, which sells at a premium. RSPO certification and tightening restrictions on deforestation potentially increase the cost of production, restrict supply and could benefit existing producers and/or bigger players who have the capital required to meet the new regulatory and legal requirements.

Input Costs
Any significant increase in input costs, or the inability of any companys ability to finance these costs due to credit constraints, could restrict supply and increase Palm Oil Prices. Since harvesting Fresh Fruit Bunches FFB is labour intensive (please refer to our growing, harvesting and processing section), labour can represent anywhere from 1530% of total costs. Most of the wages are paid in local currency and therefore any relative US$ weakness (sales are in US$) results in increased labour costs. Depending on the level of vertical integration other costs include: Fertiliser, seeds, trees, (usually US$ denominated), machinery & equipment, taxes, insurance, regulatory certification, milling and refining costs and freight costs.

Weather, disease and pests


Palms grow well in equatorial regions where there is an optimal amount of sun and rain. Extreme weather patterns such as limited or excessive rainfall (flooding can cause soil erosion) and prolonged monsoon seasons can lead to lower yields and delays in planting plans, both of which lead to lower production and higher prices. For example, the Malaysian Palm Oil Board reported in January 2011 that Malaysian Palm Oil production dropped to its lowest levels in almost a year due to heavy rainfall, and on the back of the news Palm Oil futures advanced to a three year high. There is some risk of disease and pests, as with any agriculture product, but Palms tend to be more resilient than other crops. Pests and disease are less of an issue in Papua New Guinea (PNG) where New Britain Palm Oil operates than in Malaysia and Indonesia. For developers in Africa, such as Equatorial Palm, specially adapted seeds are used to ensure that trees are resistant to any disease.

Technology
Advancements in farming technology have led to better yields, irrigation improvements and increased productivity. This generally increases supply and leads to lower prices or margin expansion depending on the shape of the demand curve.

Expansion Africa
In addition to Equatorial Palm (which has the rights to 170,000 hectares of land in Liberia), Golden Agri, Sime Darby, Wilmar and Olam are investing in Africa. Currently, Africa produces only c. 5% of global production (most of which comes from Nigeria and the Ivory Coast) and most analysts believe it will take five to ten years for any meaningful production to come from Africa. Therefore, in the short and medium term we do not believe that African expansion will have a material impact on CPO supply and prices.

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Exhibit 18: African Production


'000 MT 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Peru Venezuela Brazil Guatemala Honduras Costa Rica Ecuador 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Colombia Togo Benin Sierra Leone Liberia Guinea Angola Ghana Cameroon DRC Ivory Coast Nigeria

Source:

USDA

Latin America
In South and Central America, which also represents only c. 5% of global production, near term expansion is less likely given the commercial viability of competing crops such as corn and soy and the high incidence of diseases affecting Palm trees. Exhibit 19: Latin American Production
'000 MT 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Dominican Republic Mexico

Source:

USDA

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Demand/Consumption of Palm Oil


Palm Oil is used predominately in cooking and food products in emerging market economies (notably India and China). Exhibit 20: 2009 Global Palm Oil Consumption
India 15% China 14%

Other 38%

Malaysia 9%
Source: USDA

Indonesia 11%

EU 13%

Exhibit 21: Global Palm Oil Use


Industrial Purposes 23%

Other 2%

Food 75%
Source: USDA

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The main purchasers of Palm Oil are global food producers such as Cargill and Archer Daniels Midland (ADM). Palm Oil is in many well-known products, some of which are listed in the table below. Exhibit 22: Products that use Palm Oil
Brand Hovis Cadbury Dairy Milk Kingsmill Persil Flora Spreads Galaxy Kit Kat Mr Kipling Cakes Wrigley's Extra Birds Eye Poultry Maltesers Mars Kellogg's Special K McVitie's Digestive Comfort Goodfella's Pizza Source: Equatorial Palm Manufacturer Premier Foods Cadbury ABF Unilver Unilver Mars Nestle Premier Foods Wrigley Birds Eye Mars Mars Kellogg's United Biscuits Unilver Northern Foods

Population growth and an increase in disposable income have driven demand and consumption of Palm Oil has grown at a 13% and 8% CAGR since 1995 in India and China respectively. Exhibit 23: India Palm Oil Consumption
'000 MT 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 8% 15-Year CAGR

Source:

USDA

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Exhibit 24: China Palm Oil Consumption


'000 MT 7,000 13% 15-Year CAGR 6,000 5,000 4,000 3,000 2,000 1,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 11% China 2009

Source:

USDA

Whats driving this growth?


As we noted earlier, food demand, which is linked to population and GDP growth is one of the main reasons Palm Oil consumption has increased so dramatically during the last decade. We believe this, in addition to the substitution effect (of other edible oils) and bio-fuel requirements will continue to drive demand in the future supporting historically high price levels.

Substitution effect other edible oils


While Palm Oil consumption has increased in emerging markets due to the fact that its relatively cheaper to produce than competing products, its known health benefits have led to an increase in usage in developed markets (for example consumption in the US has grown at a 38% CAGR for the past 5 years, albeit from of a very small base).

Exhibit 25: 2004-2009 CAGR Palm Oil Consumption CAGR


40% 35% 30% 25% 20% 15% 10% 5% 0% US
Source: USDA

2004-2009 Palm Oil Consumption CAGR

38%

17%

14%

12%

Bangladesh

Pakistan

Malaysia

Palm Oil does not require hydrogenation, a process that has been linked to higher cholesterol levels, heart disease and cancer. In countries like the US, there is significant pressure on food and beverage manufactures to remove trans fatty acids

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(TFAs) from their products. For example, in New York and California TFAs are banned in restaurants. Trends towards healthier diets, in addition to the fact that Palm Oil tends to be much less expensive have contributed towards Palm Oils market share growth, which has gone from 8% of the edible oil market in 1973 to 33% in 2010. Exhibit 26: Palm Oil Market Share Edible Oils
35% 30% 25% 20% 15% 10% 5% 0%

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Source:

USDA

Exhibit 27: 1996 Edible Oil Market Share


Other, 19% Palm, 19%

Exhibit 28: 2010E Edible Oil Market Share

Other, 11% Palm, 27% Animal Fats, 12%

Soybean oil, 21%

Animal Fats, 20% Soybean oil, 19%

Sunflower oil, 12%

Rapeseed Sunflower oil, 9% oil, 12%

Rapeseed oil, 19%

Source:

USDA

Source:

USDA

Substitution effect bio-fuels


Currently, Palm Oil accounts for an extremely small percentage of bio-fuels usage (only c. 5% of bio-fuel in the EU is produced from Palm Oil) and therefore an increase in biofuel production has very little impact on Palm Oil demand in the near term. As the oil price rises, the drive to produce Palm Oil based bio-fuels increases. On the back of historically high oil prices, we usually witness legislation (in the form of tax breaks and mandates) aimed at encouraging bio-fuel production. Some governments, such as the US, already have targets in place to replace a certain percentage of fossil fuels (the US is targeting 15% by 2022) with bio-fuel.

2009

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There are concerns surrounding the environmental impact from using Palm Oil as a fuel source, and of course the cost of production and conversion would have to be considered. The current average cost of producing a Palm Oil is estimated to be $250 - $350 per tonne. Below is $US/barrel cost of converting Palm Oil into oil assuming different Palm Oil production and conversion costs. (Note we assume that 1 tonne = 7.15 barrels). Exhibit 29: Production cost (US$/barrel) of converting Palm Oil into bio-fuel
58.8 80 100 120 140 160 200 39 42 45 48 50 CPO Cost of Production US$/tonne 250 300 350 46 53 60 49 56 63 52 59 66 55 62 69 57 64 71 400 67 70 73 76 78

Source:

Conversion Cost US$/tonne

RCM Estimates

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Geographies
85% of the worlds Palm Oil is produced in Malaysia and Indonesia largely due to the suitability of the land and climate in these two countries. Among the London listed companies, REA Holdings, Anglo Eastern Plantations and MP Evans all have operations in Indonesia, while Asian Plantations and Narborough Plantations operate in Malaysia, New Britain Palm Oil operates in Papa New Guinea (with a refinery in the UK) and Equatorial Palm (still in development) has land rights in Liberia, West Africa.

Indonesia
Exhibit 30: Indonesia

Source:

http://www.merriam-webster.com

Approximately 16mn tonnes or c. 76% of Indonesias Palm Oil production is exported. Exhibit 31: Indonesian Consumption mn tonnes
5.5 5.0 4.5 4.0 3.5 3.0 2.5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2.0 1995
Source: USDA, RCM

Exhibit 32: Indonesian Production mn tonnes


25 20 15 10 5 0

2000

2005

2010E
Source:

USDA

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Indonesia Advantages For those producers that have already obtained land rights in Indonesia, there are many advantages to operating here. Land and climate are extremely suitable for growing oil palms and therefore average yields are much higher. Low operating costs and most labour is Indonesian. Plantation land is held under 25-35 year leases, which are currently renewable after expiration, (MP Evans renewed most of its leases in 1998/1999). Less remote to key markets (China and India) as compared to PNG, Africa and South America. Well established/developed Palm Oil industry. Low political/economic risk, the Indonesian economy was relatively resilient through the downturn and there is strong government support for the sector.

Indonesia Disadvantages For companies looking to expand in Indonesia it is very difficult to obtain land rights (you cannot own land outright) and there is significant land acquisition risk. The Indonesian government owns the land. Land must be zoned for commercial agricultural development and permission must be obtained to begin planting often before determining whether or not the land is plantable. Once permission is granted it can take two years to convert land rights into land titles. Export taxes - In November 2008 the Indonesian government implemented a progressive export tax, whereby the tax imposed is based on the market CPO price (not the price paid to the producing company) ranging from 0 to 25%. This tax is illustrated below.

Exhibit 33: Indonesian export tax


30% 25% Tax Rate 20% 15% 10% 5% 0% $300 $360 $420 $480 $540 $600 $660 $720 $780 $840 $900 $960 $1,020 $1,080 $1,140 $1,200 $1,260 $1,320 $1,380 $1,440 -5% $1,500

CPO Market Price


Source: MP Evans

Somewhat onerous obligations to local villagers/small growers o Support from local growers/villagers is required. o Some proportion of all land must be allocated to community projects, the amount is negotiable. o Plasma scheme requires the plantation owner to provide compensation for any displaced people.

23

Palm Oil Extracting Value

| 11 March 2011

Malaysia
Exhibit 34: Malaysia

Source:

www.chinatownconnection.com

Exhibit 35: Malaysian Consumption mn tonnes


4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1995
Source: USDA, RCM

Exhibit 36: Malaysian Production mn tonnes


20 18 16 14 12 10 8 6 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2000

2005

2010E
Source:

USDA

Similar to Indonesia, Malaysia is also well suited for growing oil palms and for those producers that have already obtained land rights in Indonesia, there are many advantages to operating here. Malaysia Advantages Land and climate are extremely suitable for growing oil palms and therefore average yields are much higher. Malaysia is a politically stable country with a strong credit rating (S&P A+/Stable). There is a very structured legal system and land registration is based on the British title system, which protects the rights of investors and land owners. A well developed banking system which provides low-cost financing to quality companies, especially in the established Palm Oil industry. No obligation to minority interests/small holders (as there are in Indonesia). Less remote to key markets (China and India) as compared to PNG, Africa and South America.

24

Palm Oil Extracting Value

| 11 March 2011

Malaysia Disadvantages There can be issues with labour shortages (although this is usually not a problem if the workers are treated well). Anglo Eastern experienced some labour shortages in 2009. Most workers are from Indonesia with many on two year contracts. Expansion is very difficult (a benefit to those who already have land rights), as 60% of Malaysia's land is protected as forest or forest reserve, and this is restricted from being converted into agriculture land. Additionally, some agricultural land is better suited for commercial purposes other than agriculture.

Papua New Guinea


Exhibit 37: PNG

Source:

http://geography.howstuffworks.com

Exhibit 38: PNG Consumption 000 tonnes


65 60 55 50 45 40 1995
Source: USDA, RCM

Exhibit 39: PNG Production 000tonnes


700 600 500 400 300 200 100 0 2009 2010E 2011E 2012E 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

2000

2005

2010E
Source:

USDA, RCM

New Britain Palm Oil dominates production in Papau New Guinea (PNG) having acquired Cargills business last year. There are several advantages to operating in PNG, most notably import tax exemptions.

25

Palm Oil Extracting Value

| 11 March 2011

Papua New Guinea Advantages


Tax advanatges PNG has preferential trading access in Europe as part of the Contonou Agreement, a treaty between the EU and African, Carribean and Pacific countries that allow for import duty exemption. PNG is a stable and growing democracy, with close ties to Australia (which has provided aid in the past). Generally less exposed to diseases. Potential lower input costs, as seeds are supplied by NBPOs seed business. Additionally, due to the type of soil in PNG, producers are able to use Nitrogen based fertiliser which is considerably less expensive than potash (used in Indonesia and Malaysia). Well established/developed Palm Oil industry.

Papua New Guinea Disadvantages


Obtaining land is an extremely difficult and complicated process which requires expertise in local customs and laws (New Britain Palm Oil has such expertise and therefore could potentially make future land acquisitions in PNG). PNG is relatively remote and therefore costs of shipping are likely to be higher, however we believe the import tax exemptions more than offset the increased freight costs.

Liberia
Exhibit 40: Liberia

Source:

www.fuelyouthliberia.org

Given that agriculture land in Southeast Asia is scarce, and demand continues to outpace supply, many companies such as Equatorial Palm are looking towards South America and Africa for expansion. Liberia, located in West Africa (where the oil palms originated) recently emerged from civil war and following the exile of leader Charles

26

Palm Oil Extracting Value

| 11 March 2011

Taylor in 2003, and subsequent election of Ellen Johnson-Sirleaf is on the road to recovery. Liberia Advantages Recent political stability. Since 2006 when Harvard educated Ellen Johnson-Sirleaf was elected head of state, the country has made significant progress towards stabilisation. In 2008 Liberias IMF status was restored and c. US$1bn of financial aid was granted. In June the IMF and World bank indicated they would help Liberia reduce its national debt. Both Sime Darby and Golden Agri Resources are in the process of developing Palm Oil plantations in Liberia

Liberia has begun to attract foreign investment

High unemployment - c. 85% unemployment rate, no issues with labour shortages An abundance of land Although obtaining permission to cultivate the land is not easy, there is ample land much of which has already been logged and therefore there should be no issues with deforestation restrictions. Equatorial Palm has 169,000 hectares of rights, Sime Darby and Golden Agri Resources have plans in place to develop c. 250,000 hectares each.

Closer proximity to Europe (lower shipping costs)

Liberia Disadvantages Less developed banking/financial system Some political/economic risk given that the country has just recently emerged from a period of civil way Lower than average yields, largely due to the presence of a dry season Poor (but improving) infrastructure Seeds need to be specially adapted to ensure that palms are resistant to West African specific diseases

27

Company Report
Industrials

11 March 2011 UK listed

New Britain Palm Oil Limited


BLOOMBERG: NBPO LN EQUITY

Rachel Galvez

+44 20 7444 0679

We launch coverage on New Britain Palm Oil (NBPO) with a Buy recommendation and a 1,197 p price target, which represents 23% upside coupled with a 2% dividend yield. NBPO produces sustainable and traceable palm oil in Papua New Guinea (PNG), which it sells to European markets. Investment case: We believe the companys competitive advantages, (the traceability and sustainability of its palm oil, above industry average yields, land and other assets, management team and industry relationships) will enable it to increase sales, expand margins (and/or demand premium pricing for its products) and maintain a market leading position going forward. Valuation: We derive our 1,197p price target using a DCF methodology assuming a WACC of 9.1% and a terminal growth rate of 3%. We believe this is well supported by the fact that NBPO trades at a discount to many of its Asian peers, despite generating better margins and higher returns. Catalysts: CPO price increases, entry in the FTSE Index, acquisition and/or contract announcements and reported gains in productivity. Risks: Risks to our investment case include lack of liquidity as a result of large ownership concentration (Kulim Malaysia and West Britain Provincial Government own 51% and 8% of the shares respectively), commodity price volatility (although this is minimised as the company sells c. 50% of production forward) and any negative impact on yields stemming from adverse weather conditions. We view political and economic risk due to operating in Papua New Guinea and management execution risk as very low for NBPO.

rachel.galvez@religarecm.com

Valuation & Recommendation Share Price 12 month target Previous target Rating Previous % Upside / (Downside) + Dividend yield Total return 23% 2% 25% 973 p 1,197 p p Buy

Company data Market Market cap ( mn / US$ mn) EV ( mn / US$ mn) Shares in issue (mn) Free float (%) 2-month average daily volume (mn) 52 Week high / low (p) Main Market 1,409 / 2,263 1,578 / 2,534 145 25% 0.11 985 / 480

Share Price
(p) 1,100 850
New Britain Palm Oil Limited Rel to FTSE ALL Share

Financial highlights Year End: 31 Dec Revenue (US$ mn) EBITDA (US$ mn) Net Profit (adj) (US$ mn) EPS (adj) (US$) EV/Sales (x) EV/EBITDA (x) P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) ROCE (post-tax) (%) FY09A 324 101 138 0.95 7.13 22.9 16.4 16.4 1.8 n.m. 2.5 FY10A 471 145 217 1.71 5.51 17.9 9.2 9.2 0.0 n.m. (2.7) FY11E 689 288 150 1.03 3.68 8.8 15.1 15.1 1.8 5.6 12.5 FY12E 742 323 174 1.20 3.24 7.4 13.0 13.0 1.8 6.9 13.1 FY13E 764 334 188 1.30 2.99 6.8 12.1 12.1 2.1 6.0 12.9
11 March 2011

600 350 100 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

Share Price Performance 1 month (0.6) Absolute (0.2) Relative*


* Relative to FTSE ALL Share

3 month 19.6 14.1

12 month 81.0 69.6

New Britain Palm Oil Limited

Company Report

11 March 2011

Investment Case
We launch coverage on New Britain Palm Oil with a Buy recommendation, and a DCF based price target of 1,197p as we believe the companys following competitive advantages will enable it to increase sales, expand margins and maintain a market leading position as the Palm Oil Industry continues to grow. Competitive Advantages Traceability and sustainability. NBPO was one of the first companies to be independently certified by the RSPO, one of the only producers to achieve certification for its smaller holders and the only producer that can provide fully sustainable and traceable palm oil (through its Liverpool and PNG refineries). In our view, traceability can only be achieved through full vertical integration and investment in downstream production. NBPO is fully integrated and continues to invest at various stages of production. Last year it commissioned the first refinery to be dedicated to sustainable palm oil and this year it is expanding into bakery and pastry. Higher yields. Due to its seed business, which funds its R&D costs, NBPO has achieved above average industry yields. We are forecasting yields to improve further as efficiency gains are made at the KPOL estates acquired last spring (through the CTP acquisition). Land and other assets. NBPO has a total land bank of 127,000 ha, c. 78,000 of which is comprised of managed oil palm plantations, in PNG. PNG benefits from EU import tax exemptions and lower input costs such as fertiliser (please refer to industry report for more details). Additionally, it has 12 oil mills, 2 refineries, an 80,000 tonne storage facility, two methane capture facilities (in construction) and what the industry considers to be a world class seed business. Obtaining land rights in PNG is a long and arduous process achieved only by having people on the ground who understand the legal and local complexities of the process, something that no other listed producer has. Thus, NBPO is likely to remain the dominant player in PNG (its only competitor is Sipef, which operates on a much smaller scale). Experienced management team. Both the executive and operational management teams have a long successful track record in the Palm Oil Industry. CEO Nick Thompson and Executive Director Alan Chaytor have been with the company since 1984. We also note that the professional management team is independent of key shareholders Kulim Malaysia and West New Britain Provincial Government. Industry relationships. We highlight the contracts with United Biscuits and Italian chocolate manufacturer, Ferrero Rocher, as evidence that, unlike most of its competitors, NBPO has direct relationships with end market customers. As sustainability and traceability become increasingly more important, NBPO should be able to increase its direct customer base, which would enable it to expand its margins.

RELIGARE INSTITUTIONAL RESEARCH

rachel.galvez@religarecm.com

29

New Britain Palm Oil Limited

Company Report

11 March 2011

Company Valuation
Year End: 31 Dec FY08A FY09A FY10A FY11E FY12E FY13E

Per Share data (US$) EPS (adj) DPS Book value Valuation ratios EV/Sales (x) EV/EBITDA (x) EV/Capital Employed (x) P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) P/BV (x)
Source: Company, RCM estimates, Bloomberg

0.15 0.42 2.7 6.41 18.9 5.3 106.3 106.3 2.7 3.1 5.8

0.95 0.28 3.2 7.13 22.9 4.7 16.4 16.4 1.8 (6.0) 4.8

1.71 0.00 4.8 5.51 17.9 3.3 9.2 9.2 0.0 (12.2) 3.3

1.03 0.28 5.5 3.68 8.8 2.3 15.1 15.1 1.8 5.6 2.8

1.20 0.28 6.5 3.24 7.4 1.9 13.0 13.0 1.8 6.9 2.4

1.30 0.33 7.4 2.99 6.8 1.6 12.1 12.1 2.1 6.0 2.1

We derive our 1,197 price target using a DCF methodology and assuming a WACC of 9.1% and a terminal growth rate of 3%. Below is the DCF sensitivity analysis. Exhibit 1: DCF Sensitivity Analysis

WACC 1,197 Terminal Growth Rate


3.0% 3.5% 4.0% 4.5% 5.0%
Source: RCM Estimates

8.0% 1,426 1,479 1,545 1,631 1,745

8.5% 1,284 1,322 1,368 1,426 1,500

9.0% 1,166 1,193 1,225 1,265 1,315

9.5% 1,065 1,085 1,108 1,135 1,169

10.0% 979 993 1,009 1,028 1,051

10.5% 904 914 925 938 954

11.0% 838 844 852 862 872

Key assumptions
Sales We are forecasting a 46% yoy increase in FY11 revenue (and small increases thereafter) driven by: Improvements in yields due to efficiency gains made at the KPOL estates acquired in April 2010 An average CPO price of US$1,100/tonne (the company has already sold 300,000 tonnes forward at an average price of $1,080) A 52% increase in the amount of refined oil sold

RELIGARE INSTITUTIONAL RESEARCH

rachel.galvez@religarecm.com

30

New Britain Palm Oil Limited

Company Report

11 March 2011

Exhibit 2: We expect an increase FFB production...


Mature Area (HA)
100,000 90,000 80,000 70,000 400 60,000 50,000 40,000 2007 2008 2009 2010 2011F 2012F 300 200 FFB '000MT 700 600 500

Exhibit 3: ... and CPO extraction rates to rise


FFB Yield - Own Production (MT/HA) 28 26 24 23.5% 22 23.0% 20 18 2010 2011F 2012F 2013F 22.5% 22.0% CPO extraction rate - % 25.0% 24.5% 24.0%

Source:

Company, RCM Estimates

Source:

Company, RCM Estimates

Capex We estimate that Capex will peak in FY11 at US$120mn, to be spent on improving the KPOL estates (infrastructure, fertiliser applications and management), mill construction and additional downstream production investments. Dividend We believe the company will resume paying a dividend in FY11, which we are forecasting to be $0.28 per share.

Peer group comparison


NBPO trades at a discount to many of its Asian peers on an EV/mature hectare metric. Exhibit 4: Peer Group Comparison
Asian listed Wilmar International Ltd Sime Darby IOI Corp Kuala Lumpur Kepong Golden Agri-Resources Indofood Agri Resources Genting Plantations United Plantations Hap Seng IJM Plantations Sarawak Oil Palms United Malacca Far East Holdings Unico-Desa Plant Chin Teck Plant Kwantas Corp Average Mkt Cap US$mn 26,637 18,007 12,617 7,339 6,400 2,598 1,974 1,201 777 744 501 458 337 300 259 222 EV US$mn 29,633 19,022 13,984 7,617 5,713 2,598 1,848 1,037 770 674 522 416 327 331 198 428 Plantation location Malaysia & Indonesia Malaysia & Indonesia (land in Liberia) Malaysia Malaysia Indonesia (land in Liberia) Indonesia Malaysia & Indonesia Malaysia & Indonesia Malaysia Malaysia & Indonesia Malaysia Malaysia Malaysia Malaysia Malaysia & Indonesia Malaysia Mature hectares 235,000 531,000 251,000 144,977 442,500 130,510 54,000 32,000 33,000 23,000 30,000 14,000 14,000 12,000 12,000 14,000 EV/ha (US$) 126,099 35,824 55,714 52,538 12,911 19,903 34,227 32,415 23,346 29,284 17,399 29,681 23,356 27,557 16,508 30,564 35,458

London listed New Britain Palm Oil REA Holdings Anglo-Eastern Plantations MP Evans Group Narborough Plantations Average

Mkt Cap US$mn 2,283 389 495 401 16

EV US$mn 2,254 770 512 414 12

Plantation location Papua New Guinea Indonesia Indonesia Indonesia (Australian cattle) Malaysia

Mature hectares 78,000 22,000 35,000 14,071 555

EV/ha (US$) 28,897 35,012 14,629 29,422 21,657 25,923

Source:

Bloomberg, RCM Estimates

RELIGARE INSTITUTIONAL RESEARCH

rachel.galvez@religarecm.com

31

New Britain Palm Oil Limited

Company Report

11 March 2011

Financials & Forecast analysis


P&L Drivers 1. Revenue Drivers Price: For 2011 we estimate that the company has sold c. 300,000 tonnes of CPO forward at an average price of US$1,083. It is one of the only companies that sell forward as a hedge against the volatile CPO price. Refined products and fully traceable oil can be sold for a premium to the market CPO price. Volume: Volumes are a function of yields (FFB per hectare and CPO extraction rate), both of which we are forecasting to improve going forward. Any increase in land under cultivation will also lead to an increase in volumes. M&A: Significant economies of scale in the industry exist. The CTP Acquisition completed in April 2010 is already contributing to sales. We would not rule out future acquisitions and note that management has been successful in the past with respect to acquisitions. FX: Relatively low currency exposure, labour is paid in local currency (Kina) but most other costs (land, fertiliser etc...) are US$ denominated. Palm Oil sales reflect the global US$ price and earnings are reported in US$ and the shares trade in GBp. 2. EBIT Margin Drivers Employee Costs are typically 16% to 30% of total costs, usually in local currency. There is some skilled labour needed but there is no apparent shortage in PNG. Raw materials: Seeds are obtained from the company's Dami seed business (which also sells to third parties but keeps the IP on the seeds), other raw materials include fertiliser. Due to type of soil in PNG, NBPO is able to use Nitrogen based fertiliser which is considerably less expensive than potash (used in Indonesia and Malaysia). R&D: Is funded by sales from the Dami seed business. Fixed costs/op. gearing: Relatively high Initial fixed cost (c. $4,500 capex/ha + cost of acquiring the land or cost of acquiring rights) but maintenance capex is relatively low. 3. Tax rates The corporate tax rate is 27.5% and we are forecasting this to be stable. PNG has preferential trading access into Europe as it is part of the ACP (Afro Caribbean and Pacific) Group of States, therefore European imports of palm oil from PNG are tariff free (vs. a 3.8% tariff for non-ACP countries). Cash Flow Drivers 1. Working capital movements: Nothing significant - relatively low tie-up of working capital. 2. Capital expenditure: Capex has been guided by management and should increase in 2011 to c. $120mn and taper off thereafter. Capex will be used for increasing capacity in the mills and Kernel crushing facilities. 3. Dividend payments: The Company suspended the 2010 dividend to finance CTP acquisition. It plans to announce an interim dividend in 2011, we are forecasting $0.28 /per share for FY 2011. Going forward the company may determine the dividend by applying a payout / dividend cover ratio. 4. Issuance of equity: Company was admitted to trading on the LSE main market in December 2007. It has not raised additional equity since its IPO and is well-financed for growth in the medium term. 5. Overall free cash generation: Palm Oil producers are very cash generative once investment has been completed. We are forecasting the company to be free cash positive from FY11. Balance Sheet Issues 1. Debt: We are forecasting the debt/equity ratio to decrease going forward. The company is in the process of refinancing its US$240mn facility (used for the CTP acquisition), and it expects to announce (in April 2011) better terms, rates and fees than it is currently paying. 2. Land assets. The total land bank is 127,000ha, all in Papua New Guinea (including New Britain and the Solomon Islands). This includes more than 78,000 ha planted of palm, 26,295 ha of which is from the CTP/KPOL acquisition. Additionally, the company has 8,000ha of sugar cane and 9,500ha grazing pasture for cattle. 3. Other assets. 12 Oil mills (11 in operation), 2 refineries (one of which is in Liverpool, UK), an 80,000 tonne storage facility, two methane recapture facilities (in construction), a seed production and plant breeding facility.

RELIGARE INSTITUTIONAL RESEARCH

rachel.galvez@religarecm.com

32

New Britain Palm Oil Limited

Company Report

11 March 2011

Company Forecasts and Metrics


Profit and Loss statement
All figures in (US$ mn)

Profitability & Returns (%)


FY10A 470.5 233.5 145.2 105.9 (8.8) 0.0 100.9 100.9 (110.2) (19.2) (28.4) 216.9 145 1.71 1.71 0.00 FY11E 688.5 364.4 288.0 230.3 (10.7) 0.0 225.3 225.3 (62.0) (13.8) 149.6 149.6 145 1.03 1.03 0.28 FY12E 742.0 400.1 323.3 259.4 (4.7) 0.0 260.8 260.8 (71.7) (14.8) 174.2 174.2 145 1.20 1.20 0.28 FY13E 764.1 419.6 334.2 267.6 5.8 0.0 279.8 279.8 (76.9) (15.3) 187.6 187.6 145 1.30 1.30 0.33 Y/E 31 Dec Gross margin EBITDA margin EBIT margin Net profit margin Tax rate RoE ROCE (post-tax) FY09A 49.1 31.2 22.7 42.6 78.3 32.1 2.5 FY10A 49.6 30.9 22.5 46.1 109.2 37.4 (2.7) FY11E 52.9 41.8 33.5 21.7 27.5 20.0 12.5 FY12E 53.9 43.6 35.0 23.5 27.5 20.1 13.1 FY13E 54.9 43.7 35.0 24.5 27.5 18.7 12.9

Y/E 31 Dec Revenue Gross profit EBITDA EBIT Net interest/inc./(exp.) Exceptional items Pre-tax Profit (stated) Pre-tax Profit (adj) Tax paid Minorities Net Profit (stated) Net Profit (adj) Shares outstanding (mn) EPS (stated) EPS (adj) DPS

FY09A 323.8 159.1 101.1 73.6 (1.5) 0.0 75.3 75.3 (58.9) (3.1) 13.2 138.0 145 0.95 0.95 0.28

Growth (YoY, %)
Y/E 31 Dec Revenue EBITDA Net profit EPS Dividend Capital employed FY09A (8.1) (15.3) 549.6 548.3 (34.4) 17.4 FY10A 45.3 43.7 57.1 79.1 (100.0) 95.2 FY11E 46.3 98.4 (31.0) (39.5) n.a. 14.7 FY12E 7.8 12.2 16.5 16.5 0.0 11.3 FY13E 3.0 3.4 7.7 7.7 16.5 9.3

Cash Flow statement


All figures in (US$ mn)

Cash Conversion & Capital Intensity metrics


FY09A 73.6 27.5 (6.9) (74.1) (37.2) (77.3) (58.9) (133.7) (40.3) 0.0 0.0 0.0 (135.0) (43.3) FY10A 105.9 39.3 (43.4) (186.9) (200.3) (74.7) (110.2) (494.9) 0.0 0.0 0.0 0.0 (276.8) (271.6) FY11E 230.3 57.7 12.0 (13.8) 219.2 (120.0) (62.0) 96.2 (40.5) 0.0 0.0 0.0 126.6 (202.1) FY12E 259.4 63.9 22.5 (14.8) 260.6 (90.0) (71.7) 169.4 (40.5) 0.0 0.0 0.0 155.7 (58.5) FY13E 267.6 66.5 3.9 (15.3) 258.0 (90.0) (76.9) 167.5 (47.2) 0.0 0.0 0.0 134.8 77.0 Y/E 31 Dec Fixed Assets/Sales (%) Working Capital/Sales (%) Working Capital (days) Inventory (days) Payables (days) Receivables (days) Op. Cash Flow/EBIT (%) CAPEX/depreciation (%) Free Cash Flow/Sales (%) Dividend cover (x) FY09A 111.5 27.2 97 56 33 74 (50.5) 281.3 (41.3) 0.3 FY10A 103.3 40.4 108 72 26 61 (189.2) 189.8 (105.2) n.a. FY11E 88.3 26.8 99 65 24 58 95.2 207.9 14.0 3.7 FY12E 87.9 22.7 87 53 29 63 100.5 140.8 22.8 4.3 FY13E 88.6 21.9 80 49 30 61 96.4 135.2 21.9 4.0

Y/E 31 Dec EBIT Depreciation & Amortisation Change in Working Capital Other Operating Cash Flow Capital Expenditure Tax paid Cash Flow to the Firm Dividends Acquisitions & Disposals Proceeds from Share Issues Currency Adjustments Free Cash Flow to Equity Year End Net Cash/(Debt)

Balance Sheet & Leverage ratios


Y/E 31 Dec FY09A FY10A FY11E FY12E FY13E Net Debt/Equity (%) 9.1 35.8 22.9 5.7 n.a. Net Debt/EBITDA (x) 0.4 1.9 0.7 0.2 n.a. Gross Debt/Free Cash Flow (x) (0.4) (0.6) 3.2 1.8 1.6 Net interest cover (x) 50.0 12.0 21.5 55.1 n.a. Cash interest cover (x) n.a. n.a. n.a. n.a. n.a.

Balance Sheet
All figures in (US$ mn)

Y/E 31 Dec Tangible Fixed Assets Intangibles Assets Associates & Investments Working Capital Other Assets of which: tax assets Other Liabilities of which: tax liabilities of which: pension liabilities Cash & Cash Equivalents Total Capital Employed Gross Debt of which: short term of which: long term Shareholders Equity Minorities Total Capital Employed

FY09A 395.3 184.6 4.4 88.0 0.0 0.0 162.5 124.0 0.0 13.5 532.9 56.8 15.0 41.8 468.8 7.3 532.9

FY10A 577.1 604.4 8.5 190.1 0.0 0.0 362.1 275.1 0.0 10.2 1,040.4 281.7 239.0 42.7 691.9 66.8 1,040.4

FY11E 639.4 604.4 11.5 184.9 0.0 0.0 360.0 275.1 0.0 110.0 1,193.6 312.1 264.8 47.3 800.9 80.6 1,193.6

FY12E 665.4 604.4 12.8 168.7 0.0 0.0 366.6 275.1 0.0 239.9 1,328.4 298.4 253.2 45.2 934.6 95.4 1,328.4

FY13E 688.9 604.4 13.3 167.5 0.0 0.0 369.3 275.1 0.0 342.7 1,451.3 265.7 225.4 40.3 1,075.0 110.7 1,451.3

Revenue driver assumptions


Mature Area
100,000 90,000 80,000 70,000 400 60,000 50,000 40,000 2007 2008 2009 2010 2011F 2012F 300 200 FFB '000MT 700 600 500

RELIGARE INSTITUTIONAL RESEARCH

rachel.galvez@religarecm.com

33

New Britain Palm Oil Limited

Company Report

11 March 2011

Company Overview
New Britain Palm Oil
Company Description New Britain Palm Oil cultivates and processes Crude Palm Oil (CPO) and Palm Kernel Oil (PKO) primarily in Papua New Guinea (PNG), which it sells to both the domestic and foreign markets. It is focused on sustainability, is the world's leading producer of sustainable palm oil, was one of the first producers to receive certification from the Round Table on Sustainable Palm Oil and recently (Spring 2010) opened a refinery in Liverpool to increase traceability. NBPO one of the only listed Palm Oil producers that is completely vertically integrated. The company is also the largest producer of sugar and beef in PNG through Ramu Agri-Industries, Ltd (RAIL). Company Strategy New Britain Palm Oil's strategy is to grow revenue and profits by increasing the area under cultivation and improving the productivity of its land and refineries, while still operating in a sustainable manner. It had originally set out to double the size of its plantations over eight years, which it now plans to do by FY12 due to the CTP acquisition. Productivity gains in the form of higher yields are likely to be achieved through its proprietary seed business and by improving the infrastructure and management of the three estates (26,295ha of palm oil plantations) it now owns through the CTP acquisition. Additionally, as a producer of fully traceable and sustainable Palm Oil, NBPO should be able to command a premium price for its refined products. Planted area split by geography
Solomon Islands 7%

Company's stated objectives Timing Description Near term Continue to increase sales and production from Liverpool refinery Near term Expand PNG refinery capabilities Near term Refinance $240 mn debt facility Medium term Continue to improve the efficiency of the KPOL estates acquired in April 2010 Medium term Ongoing new planting programmes Medium term "30:30" initiative - raise FFB yield to 30tonnes/ha and extraction rates to 30% Medium term Increase area under cultivation to c. 80K hectares by FY12 Long term Continue to be recognised as an ethical, sustainable and traceable producer of Palm Oil

Papua New Guinea 93%

Sales split by product FY11E Key Products/Services Product Crude Palm Oil Refined Products Palm Kern Oil Sugar Seeds Beef
Seeds 1% Beef 1% Sugar 6%

Description Edible oil that is extracted from the pulp of the fruit of the palm. Crude Palm Oil that is further processed in a refinery and commands a premium price. Oil that is derived from the seed or kernel of the palm. Usually refers to sucrose, primarily comes from sugar cane and is characterised by a sweet flavour. Dami seed business represents a small portion of sales but is a key competitive advantage. C. 20,000 cattle on 9,500 ha, small portion of sales but PNG's leading producer of quality beef.

Refined Products 23%

Management and Board Name Antonio Monteiro de Castro Nick Thompson Alan Chaytor Amir Mohareb

Palm Kernel Oil & Expeller 5%

Title
Non-Executive Chairman Chief Executive Officer

Crude Palm 64%

Executive Director Group Chief Financial Officer

Share Price Drivers Probability Medium Medium Medium High High

Major Share holders Description Palm Oil Price Increases Entry into the FTSE Index Acquisitions Any announcements regarding contracts with key end customers Increased production efficiency (i.e. Higher yields)
Name Kulim Malaysia Berhad West New Britain Provincial Government Alan Chaytor Pacific Rim Plantation Services Blackrock Investment Management National Superannuation Fund Limited AXA Framlington Investment Management Wellington Management Co % 51% 8% 5% 5% 4% 4% 3% 3%

Expected Events Date 15 April 2011

Source: Bloomberg

Description Details of the refinancing of the US$240mn facility will be announced

Recent Corporate Action/Events Date Description 30 April 2010 NBPO completes 80% acquisition of CTP PNG Limited (renamed Kula Palm Oil, KPOL), a Palm Oil Plantation company in PNG for $175mn. 01 May 2010 UK Refinery (a Liverpool based processing facility that can produce refined palm oil ) is fully commissioned (cost c. 18mn). 08 October 2009 NBPO enters into a 5 year supply agreement with Ferrero (confectionary) via Pacific Rim Plantations. 10 October 2008 Acquisition for Ramu Agri-Industries Limited (RAIL) is completed for $63mn, implying a price of $1,900 per ha. 17-Dec-07 Shares admitted to trading on the LSE main market, company raised 62.5mn from issuance of 25mn shares at 250p.
Source: Company, RCM Estimates

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34

New Britain Palm Oil Limited

Company Report

11 March 2011

The map below shows the location of NBPOs operations


Exhibit 5: New Britain Palm Oils operations

Source: NBPO

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35

New Britain Palm Oil Limited

Company Report

11 March 2011

Industry Overview
Industry & Competitive analysis Industry Description (please refer to sector report for more details) Palm Oil and palm kernel oil are edible oils extracted from the fruit of palm trees. Crude palm oil can be further refined and sold as refined palm oil. Southeast Asia represents 85% of global production and India and China account for >30% of global consumption. Industry Growth Drivers An increase in food demand driven by population growth and rising disposable incomes. 75% of palm oil is used in food products. Substitution of other edible oils, due to health benefits and lower cost (edible oil market share has increased by 50% since 1996). To a lesser degree, an increase in bio-fuel mandates, although Palm Oil accounts for a small percentage of bio-fuels usage. SWOT Analysis

Strengths Vertical integration Agreements with Ferrero and United Biscuits Location - PNG (tax advantages) Land & assets Sustainable producer (RSPO certified) Strong management team Industry leading yields

Weaknesses Ownership concentration / lack of liquidity Correlation with the CPO price, which can be volatile. PNG is relatively remote (vs. Malaysia or Indonesia) but tax benefits offset increase shipping costs

Opportunities Increase in demand for Palm Oil due to: food demand, substitution effect and bio-fuel demand. Increase in demand for sustainable and traceable Palm Oil. Tightening restrictions on expansion creates opportunities for existing producers.

Threats Competition - Sipef on a much smaller scale. Adverse weather conditions can negatively impact yields. Commodity price volatility. Some political and economic risk, although PNG is a relatively stable democracy.

Porter's Five Forces

New Entrants
There are significant barriers to entry in this business (land is very difficult to obtain in PNG)

Suppliers
NBPO has its own seed business, uses various suppliers for fertiliser

Industry Competitors
Only Sipef in PNG 7 London listed Palm Oil producers (2 are in development)

Customers
All of the oil is exported to Europe (tax benefits offset freight costs), looking to increase direct customer base, high customer concentration is standard for the industry

Substitutes
Other edible oils, although Palm Oil's production costs are much lower

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36

New Britain Palm Oil Limited

Company Report

11 March 2011

Board and Management


Antonio Monteiro de Castro Non-executive Chairman
Antonio was the Chief Operating Officer of British American Tobacco (BAT) prior to his retirement in December 2007, a constituent of the FTSE 100 index. He is a Senior Independent Director of Blackrock Latin American Investment Trust PLC and a Director of Getlio Vargas Foundation, an academic and research organization in Brazil. Antonio has a MBA from Babson College in the USA.

Nick Thompson Chief Executive Officer


Nick joined the Company in 1984 after completing a Masters Degree in tropical agriculture development. His progress through the Company included successfully managing the project development at Kapiura and then the research station at Dami. From October 1991, he was both Senior Manager of the Mosa group of plantations and Deputy Director Plantations. Nick was appointed Managing Director in June 1994 after completing his MBA at Bath University, in the UK.

Alan Chaytor Executive Director


Alan has been working with NBPOL since 1984 when the Company was a part of Harrisons & Crosfield PLC. He went on to become the soft commodities director for Harrisons & Crosfield PLC based in Singapore. Alan started Pacific Rim Plantation Services Pte Ltd in 1994, and lived in Singapore until 2002. He is an active member in the trade and various palm oil associations and bodies. A major and committed shareholder through his wholly owned company, Pacific Rim. Alan has responsibility for sales and marketing and investor relations in the UK. He is also a director of Renew Energy Limited.

Amir Mohareb Group Chief Financial Officer


Amir joined New Britain Palm Oil in 2008 as Chief Financial Officer Papua New Guinea, after starting his career with PricewaterhouseCoopers where he worked for 12 years in the Assurance Services practice in both Australia and Papua New Guinea. Amir has been a member of the Institute of Chartered Accountants in Australia since 2005 having graduated with a Bachelor in Commerce and Business Law from the University of New South Wales, Australia. Amir is responsible for the financial/management reporting and treasury function of the Group and was made Group Chief Financial Officer in August 2010.

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37

Company Report
Industrials

11 March 2011 UK listed

Asian Plantations
BLOOMBERG: PALM LN EQUITY

Rachel Galvez

+44 20 7444 0679

We launch coverage on Asian Plantations (PALM LN) with a Buy recommendation and a 345p price target, which represents 29% upside. Asian Plantations is involved in the acquisition and development of palm oil plantation land in Sarawak, Malaysia. It currently has three estates, which total 15,645 hectares of land, and which are in the process of being planted. Investment case: We believe the company will be able to execute on its strategy (acquiring undeveloped land and selling it when it reaches full maturity) given its competitive advantages (land rights, mill technology and management) and its track record since listing on AIM in November 2009. Catalysts. CPO price increases, FY10 results and additional land acquisitions. We would expect the shares to significantly re-rate once planting is completed and all of the existing estates are producing. Valuation: We derive our 345p price target using a DCF methodology. In our view this is well supported by the fact that mature land is currently valued at US$25,000/hectare, which would equate to a share price of 422p applying a 9.9% (WACC) discount rate and assuming it takes three years for the land to reach maturity. Risks: Risks to our investment case include lack of liquidity as a result of large ownership concentration (Keresa Plantations and Steadfast Financial own 40% and 23% of the shares respectively), commodity price volatility and any negative impact on yields stemming from adverse weather conditions. Execution is also a risk and once this is eliminated we would expect significant share price appreciation.

rachel.galvez@religarecm.com

Valuation & Recommendation Share Price 12 month target Previous target Rating Previous % Upside / (Downside) + Dividend yield Total return 29% 0% 29% 267 p 345 p p Buy

Company data Market Market cap ( mn / US$ mn) EV ( mn / US$ mn) Shares in issue (mn) Free float (%) 2-month average daily volume (mn) 52 Week high / low (p) AIM 79 / 127 103 / 165 30 52 0.03 311 / 100

Share Price
(p) 350.0 275.0
Asian Plantations Limited Rel to FTSE AIM ALL Share

Financial highlights Year End: 30 Jun Revenue (US$ mn) EBITDA (US$ mn) Net Profit (adj) (US$ mn) EPS (adj) (US$) EV/Sales (x) EV/EBITDA (x) P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) ROCE (post-tax) (%) FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A 0 (1) (1) (0.07) n.a. n.m. n.m. n.m. 0.0 n.m. (3.8) FY10E 0 (1) (2) (0.06) 622.00 n.m. n.m. n.m. 0.0 n.m. (4.8) FY11E 1 (1) (2) (0.07) 338.68 n.m. n.m. n.m. 0.0 n.m. (4.9) FY12E 5 2 0 (0.01) 43.46 139.3 n.m. n.m. 0.0 n.m. (0.6)

200.0 125.0

50.0 Nov-09 May-10 Nov-10

11 March 2011

Share Price Performance 1 month (3.2) Absolute (0.9) Relative*


* Relative to FTSE AIM ALL Share

3 month 38.1 32.0

12 month 116.0 79.4

Asian Plantations

Company Report

11 March 2011

Investment case
We launch coverage on Asian Plantations with a Buy recommendation and a DCF based price target of 345p. Strategy. Asian Plantations acquires undeveloped but properly zoned Malaysian agriculture land with the intention of selling it as mature producing palm oil plantations. Although the execution is somewhat complex, we believe the economics are simple. Titled land is acquired for approximately US$2,000 per hectare and development costs are US$4,500 per hectare, spread over three years. Approximately 2/3 of the total cost of US$6,500 are financed on what we believe are good terms by local banks. The land is then sold as mature plantation land, which in Malaysia is currently valued at US$25,000/hectare. We believe the company will be able to execute on its strategy given its competitive advantages and based on what it has achieved so far. Competitive advantages Land rights. Largely due to the relationships and expertise it has in the area, the company has been able to acquire 15,645 ha of plantable land in Sarawak, Malaysia, where yields tend to be high but land is becoming increasingly scarce. Mill technology. Joint CEO and Executive Director Graeme Brown has developed a unique vertical sterilizer mill which requires less energy and labour than traditional mills. The mill has proven to be successful at Keresa Plantations (the largest share holder) and Asian plantations is in the process of constructing its own mill incorporating this technology and a methane recapture process (which is carbon credit eligible). Management experience and expertise. In our view, execution risk is mitigated by the fact that Graeme Brown, Co-Founder & Joint CEO and Captain Panir, Chief Operating Officers have over 10 and 25 years of industry experience respectively. Specifically, Graeme Brown has successfully managed 6,000 hectares of palm oil for Keresa Plantations (where he remains the managing director). Additionally, Datuk Linggi (Graeme Browns father in law) has over 36 years experience in the Malaysian business and legal sectors with an extensive network in both the Malaysian government and private sectors. Sustainability. Given the industrys recent focus on sustainability and social responsibility, we believe a commitment to being RSPO compliant is necessary for medium and longer term growth. Management has experience working with the RSPO and intends to begin the process of obtaining RSPO certification soon. Proven track record. We are comforted by the fact that the company has been able to acquire land, raise capital and generate revenue from FFB sales since listing in November 2009. Exhibit 1: Significant events
Date Jan-11 Jan-11 Dec-10 Nov-10 Sep-10 Aug-10 Aug-10 Jun-10 Dec-09 Nov-09 Event Share Placing Medium term note Acquisition Issue of debt Interim results Subscription Acquisition Final Results Acquisition Admission to AIM Details Company raised c. $16mn by placing 7.3mn new shares at the price of 220p Issued a medium term note for $80mn w ith various maturities ranging up to ten years Fortune Plantation acquisition is completed for c. $12.2mn $1mn bond purchased by AAC, proceeds to be used for w orking capital 6 months to 30 June 2010, first revenue reported from FFB Company enters into subscription agreements w ith institutional investors to raise c. $6.6mn Acquisition of Fortune estate c. 5,000 ha in Saraw ak, Malaysia, c. $2,400/ha over 5,000 ha of planting completed and FFBs successfully harvested Acquisition of "Jubilant" and "Incosetia," plantations c. 5,850 ha in Saraw ak, Malaysia, c. 2,100/ha 5.26mn raised through placing of 7nm shares, approximate market cap of 22.8mn

Source: Company, Investigate

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39

Asian Plantations

Company Report

11 March 2011

Company Valuation
We derive our 352p price target using a DCF methodology and assuming a WACC of 9.9% and a terminal growth rate of 3%. This is well supported by the fact that: Mature land is currently valued at US$25,000/hectare; and this would equate to a share price of 422p applying the same discount rate (WACC of 9.9%) and assuming it takes three years for the land to reach maturity.

Below is the DCF sensitivity analysis. Exhibit 2: DCF Sensitivity Analysis


WACC 8.0% Terminal Growth Rate 2.0% 3.0% 4.0% 9.0% 10.0% 11.0% 12.0%

553p 570p 596p

434p 435p 438p

347p 341p 334p

281p 273p 262p

230p 221p 209p

Source:

RCM estimates

Our analysis is based only on the companys existing land rights as we have not incorporated any acquisitions into our forecasts. We are assuming PBT is positive from FY13 based on the following plantings schedule, FFB production yields and CPO extraction rates: Exhibit 3: Revenue driver assumptions
2010F CULTIVATED AREA AND PRODUCTION ASSUMPTION Own Planted Area (Hectares) YoY % ch Maturity - % of Planted Area Mature Area (HA) FFB ('000 MT) - Own Production FFB Yield - Own Production (MT/HA) CPO production ('000 MT) CPO extraction rate - % Source: RCM estimates 2011F 2012F 2013F

15,645 47.0% 25.0% 3,911 3 0.8 0 10.0%

15,646 0.0% 45.0% 7,041 6 0.8 1 10.0%

15,647 0.0% 80.0% 12,518 35 2.8 5 14.0%

15,648 0.0% 90.0% 14,083 68 4.8 16 20.0%

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40

Asian Plantations

Company Report

11 March 2011

Cash flow
We believe Asian Plantations will be cash flow positive from FY14E due primarily to the fact that we are forecasting positive PBT from FY13 and considerable declines in Capex once 90% of the land is mature and the mill has been commissioned, (specifically we estimate that capex declining from 43% of sales in FY13 to 16% of sales in FY14). The charts below illustrate our forecasts.

Exhibit 4: FCF US$ mn We are forecasting the firm to be FCF positive from FY14....
10.00 5.00 (5.00) (10.00) (15.00) (20.00) (25.00) (30.00) (35.00) FY09A
Source:

Exhibit 5: FCF US$ mn .... due to an increase in PBT and lower capex
20.0 10.0 -10.0 -20.0 -30.0 -40.0 FY10E FY11E FY12E FY113E FY09A FY14E Capital Expenditure Tax paid Depreciation & Amortisation Change in Working Capital Other PBT

FY10E

FY11E

FY12E FY113E FY14E


Source:

RCM estimates, Company

RCM estimates, Company

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41

Asian Plantations

Company Report

11 March 2011

Peer Group Comparison


Given that the Asian Plantations is relatively early stage, analysis using valuation metrics such as P/E, EV/Sales and EV/EBITDA is not meaningful, in our view. If we compare it on an EV/hectare basis, we note that Asian plantations is currently trading on an EV/hectare multiple of US$ 8,245 versus the EV/mature hectare average of US$25,923 for the London listed group and US$35,458 for the Asian listed companies. As the land matures we would expect this valuation gap to narrow. Exhibit 6: Asian listed comparables
Asian listed Wilmar International Ltd Sime Darby IOI Corp Kuala Lumpur Kepong Golden Agri-Resources Indofood Agri Resources Genting Plantations United Plantations Hap Seng IJM Plantations Sarawak Oil Palms United Malacca Far East Holdings Unico-Desa Plant Chin Teck Plant Kwantas Corp Average Mkt Cap US$mn 26,637 18,007 12,617 7,339 6,400 2,598 1,974 1,201 777 744 501 458 337 300 259 222 EV US$mn 29,633 19,022 13,984 7,617 5,713 2,598 1,848 1,037 770 674 522 416 327 331 198 428 Plantation location Malaysia & Indonesia Malaysia & Indonesia (land in Liberia) Malaysia Malaysia Indonesia (land in Liberia) Indonesia Malaysia & Indonesia Malaysia & Indonesia Malaysia Malaysia & Indonesia Malaysia Malaysia Malaysia Malaysia Malaysia & Indonesia Malaysia Mature hectares 235,000 531,000 251,000 144,977 442,500 130,510 54,000 32,000 33,000 23,000 30,000 14,000 14,000 12,000 12,000 14,000 EV/ha (US$) 126,099 35,824 55,714 52,538 12,911 19,903 34,227 32,415 23,346 29,284 17,399 29,681 23,356 27,557 16,508 30,564 35,458

Source:

RCM, Bloomberg

Exhibit 7: London listed comparables


London listed New Britain Palm Oil REA Holdings Anglo-Eastern Plantations MP Evans Group Narborough Plantations Average London listed in development Asian Plantations Equatorial Palm Oil Mkt Cap US$mn 2,283 389 495 401 16 EV US$mn 2,254 770 512 414 12 Plantation location Papua New Guinea Indonesia Indonesia Indonesia (Australian cattle) Malaysia Mature hectares 78,000 22,000 35,000 14,071 555 EV/ha (US$) 28,897 35,012 14,629 29,422 21,657 25,923

129 55

168 46

Malaysia Liberia

Land rights - hectares 15,645 169,000

8,245 325

Source:

RCM, Bloomberg

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42

Asian Plantations

Company Report

11 March 2011

For a more detailed comparative analysis, we compare Asian plantations to IJM plantations. We apply our FY14 assumptions, as we expect 90% of the current land assets to be mature by FY14. On the current share price, Asian Plantations would be trading at a 45% discount to IJM on an EV/Mature ha basis, which we believe is unjustified given the forecasted net income margin is 532 basis points higher. Exhibit 8: Comparative Analysis
Comparitive Analysis IJM Plantations (RM) Price Per Share- 22 February, 2011 Land Mature Palm Oil (Ha) Immature Palm Oil (Ha) Total Palm Land (Ha) Unplanted Land (Ha) Total Hectares (Ha) # Mills owned Production FFB (tonne) CPO (tonne) Palm kernel (PK) (tonne) CPO extraction rate (%) Kernel extraction rate (%) FFB processed (tonne) Yield FFB (tonne/Ha) CPO yield (tonne/Ha) Palm Kernel yield (tonne/Ha) Total yield (tonne/Ha) Financials Revenue (RM) Net Income (RM) Shares Outstanding '000 Equity Value (RM) Equity Value (USD millions) Debt + Deferred Tax (RM) Cash (RM) Net Debt: (RM) Minority Interest (RM) TEV (RM) TEV (USD millions) Ent. Value Per Mature Ha (US$): Ent. Value Per Total Palm Ha (US$): Asian Plantations discount to IJM Net Income Margin
Source: RCM, Company

Asian Plantations 2.93


RM

270

23,590 6,939 30,529 30,529 4

FY14E FY14E FY14E FY14E

14,084 1,565 15,649 15,649 1

604,663 163,452 33,897 21.6% 4.5% 756,870

FY14E FY14E FY14E

135,207 31,368 23.2%

FY14E

135,207

25.6 4.3 1.4 5.7

FY14E FY14E

9.60 2.0

469,819 131,498 809,822 2,372,780 765 148,044 183,982 (35,938) 1,594 2,338,436 754 31,977 24,709 28.0%

Revenue US $'000 FY14E Net Income US $'000 FY14E Equity Value ('000) $ Debt US$'000 FY14E Cash US$ '000 FY14E Net Debt US$'000 FY14E

30,741 10,446 40,717 109,937 178 24,705 (37,482) 62,187

$ $ $

$ $ $ Net Income margin FY14E

240 17,030 15,327 38% 34.0%

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43

Asian Plantations

Company Report

11 March 2011

Company Forecasts and Metrics


Profit and Loss statement
All figures in (US$ mn)

Profitability & Returns (%)


FY09A 0.0 0.0 (1.4) (1.4) 0.0 0.0 (1.4) (1.4) 0.0 0.0 (1.4) (1.4) 20 (0.07) (0.07) 0.00 FY10E 0.3 0.2 (1.0) (1.1) (0.7) 0.0 (1.7) (1.7) 0.0 0.0 (1.7) (1.7) 30 (0.06) (0.06) 0.00 FY11E 0.6 0.4 (0.9) (0.9) (1.5) 0.0 (2.4) (2.4) 0.0 0.0 (2.4) (2.4) 37 (0.07) (0.07) 0.00 FY12E 5.2 2.9 1.6 1.6 (1.9) 0.0 (0.3) (0.3) 0.0 0.0 (0.3) (0.3) 37 (0.01) (0.01) 0.00 Y/E 30 Jun Gross margin EBITDA margin EBIT margin Net profit margin Tax rate RoE ROCE (post-tax) FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A 0.0 n.a. n.a. n.a. n.a. (10.3) (3.8) FY10E 63.3 (387.9) (396.2) (653.3) n.a. (14.0) (4.8) FY11E 58.6 (142.0) (145.6) (390.1) n.a. (13.2) (4.9) FY12E 55.4 31.2 30.8 (6.1) n.a. (1.2) (0.6)

Y/E 30 Jun Revenue Gross profit EBITDA EBIT Net interest/inc./(exp.) Exceptional items Pre-tax Profit (stated) Pre-tax Profit (adj) Tax paid Minorities Net Profit (stated) Net Profit (adj) Shares outstanding (mn) EPS (stated) (US$) EPS (adj) (US$) DPS (US$)

FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Growth (YoY, %)
Y/E 30 Jun Revenue EBITDA Net profit EPS Dividend Capital employed FY08A n.a. n.a. n.a. n.a. n.a. n.a. FY09A n.a. n.a. n.a. n.a. n.a. n.a. FY10E n.a. (26.9) 26.7 (15.2) n.a. 1.4 FY11E 133.0 (14.7) 39.1 11.6 n.a. 37.5 FY12E 731.6 (282.7) (87.1) (87.1) n.a. (0.6)

Cash Flow statement


All figures in (US$ mn)

Cash Conversion & Capital Intensity metrics


FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A (1.4) 0.1 (7.0) 0.2 (8.1) (2.5) 0.0 (25.0) 0.0 (12.0) 8.6 0.0 (4.4) (18.3) FY10E (1.1) 0.2 (0.1) 0.0 (1.6) (1.2) 0.0 (4.1) 0.0 0.0 0.0 0.0 (1.9) (38.8) FY11E (0.9) 0.0 (0.4) 0.0 (2.8) 0.0 0.0 (2.8) 0.0 0.0 16.0 0.0 (2.8) (52.1) FY12E 1.6 0.0 (0.8) 0.0 (1.1) 0.0 0.0 (1.1) 0.0 0.0 0.0 0.0 (1.1) (66.2) Y/E 30 Jun Fixed Assets/Sales (%) Working Capital/Sales (%) Working Capital (days) Inventory (days) Payables (days) Receivables (days) Op. Cash Flow/EBIT (%) CAPEX/depreciation (%) Free Cash Flow/Sales (%) Dividend cover (x) FY08A FY09A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 575.2 n.a. 123,700. 0 n.a. n.a. n.a. n.a. FY10E 3,435.2 (435.8) (1,590) 62 1,898 246 148.8 5,313.6 (1,550.4 ) n.a. FY11E 2,937.3 (125.0) (570) 82 815 163 308.2 0.0 (448.5) n.a. FY12E 449.8 0.5 (27) 43 110 41 (68.6) 0.0 (21.1) n.a.

Y/E 30 Jun EBIT Depreciation & Amortisation Change in Working Capital Other Operating Cash Flow Capital Expenditure Tax paid Cash Flow to the Firm Dividends Acquisitions & Disposals Proceeds from Share Issues Currency Adjustments Free Cash Flow to Equity Year End Net Cash/(Debt)

Balance Sheet & Leverage ratios


Y/E 30 Jun FY08A FY09A FY10E FY11E FY12E Net Debt/Equity (%) n.a. 138.1 337.0 207.6 267.0 Net Debt/EBITDA (x) n.a. n.a. n.a. n.a. 41.2 Gross Debt/Free Cash Flow (x) n.a. (0.9) (6.0) (8.9) (22.7) Net interest cover (x) n.a. (64.2) (1.5) (0.6) 0.8 Cash interest cover (x) n.a. n.a. n.a. n.a. n.a.

Balance Sheet
All figures in (US$ mn)

Y/E 30 Jun Tangible Fixed Assets Intangibles Assets Associates & Investments Working Capital Other Assets of which: tax assets Other Liabilities of which: tax liabilities of which: pension liabilities Cash & Cash Equivalents Total Capital Employed Gross Debt of which: short term of which: long term Shareholders Equity Minorities Total Capital Employed

FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

FY09A 5.1 0.5 0.0 (1.2) 27.0 0.0 0.0 0.0 0.0 4.2 35.7 22.5 2.5 19.9 13.3 0.0 35.7

FY10E 13.2 0.5 0.0 (1.2) 37.6 0.0 0.0 0.0 0.0 (14.1) 36.2 24.7 2.5 22.2 11.5 0.0 36.2

FY11E 23.2 0.5 0.0 (0.8) 54.1 0.0 0.0 0.0 0.0 (27.4) 49.8 24.7 2.5 22.2 25.1 0.0 49.8

FY12E 23.2 0.5 0.0 0.0 67.1 0.0 0.0 0.0 0.0 (41.5) 49.5 24.7 2.5 22.2 24.8 0.0 49.5

Revenue drivers
Mature Area (HA)
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2010 2011F 2012F 2013F 2014F

Total FFB ('000 MT)


160 140 120 100 80 60 40 20 0

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44

Asian Plantations

Company Report

11 March 2011

Financials & Forecast analysis


P&L Drivers 1. Revenue Drivers Price: The price of Crude Palm Oil is driven by industry supply and demand dynamics (see industry report for details) Volume: Volumes will increase substantially as the company continues to progress on its planting schedule. M&A: Significant economies of scale exist in the industry. Additional land acquisitions are likely and would increase revenue but are not currently factored into our forecasts. Historically, industry consolidation within Malaysia has been significant and this trend has more recently gone global. FX: The company reports in US$, CPO prices reflect the global US$, most costs (fertiliser, land, machinery) are in US$ denominated currencies, labour is paid in local currency. 2. EBIT Margin Drivers EBIT margin expansion is driven by improvements in yields. Employee costs: are paid in local currency, most of the workers come from Indonesia and are often on two year contracts. Raw materials: Include fertiliser (potash) and steel for the mill. We estimate the total cost of production to be approximately US$250-350 per tonne, which does not include freight costs. Fixed costs/op. gearing: High fixed cost business, the upfront capital costs per hectare are US$6,500, (land costs are US$2,000 and development costs are US$4,500). Other: The commissioning of the FFB crushing mill (due to be operational in 2012) should help increase revenue and expand margins. Cash Flow Drivers 1. 2. Working capital movements: We expect significant cash outflows from working capital as the company becomes revenue generating, which is typical of companies that are in the early stage of development. Capital expenditure: Capex to develop the land is estimated to be US$4,500 per hectare. We estimate the cost of building the mill to be c. $17mn spread over two years. Once planting has been completed and the mill has been commissioned, capital expenditure costs will declined dramatically. Dividend payments: As the company is in its early stage of development, we are not forecasting it to pay a dividend in the medium term.

3.

4. Overall free cash generation: Fully developed Palm Oil Producers are very cash generative. Balance Sheet Issues 1. Debt: We are forecasting an increase in net debt levels due to planting and mill construction. These levels should decline post FY13, at which time most of the land will have been planted and the mill will have been commissioned. The company finances two thirds of the land acquisition and development costs (US$6,500/hectare) with local banks on what we believe are attractive terms. Debt levels are high (relative to developed plantation companies) due to the fact that upfront capital requirements are considerable in this industry. We would expect net debt/equity and net debt/ebitda ratios to normalise as the company increases its production. We also note that Malaysia has a highly liquid and well developed banking sector. Furthermore, the agriculture sector is a priority lending sector and most banks have specialist financing departments for palm oil.

2. Other liabilities / assets: Exhibit 9: Asian Plantation land assets (in Sarawak, Malaysia)
Plantation name Incosetia BJ Corporation Fortune Plantation Total Interest (%) 100% 100% 100% Total (Hectares) 5,850 4,795 5,000 15,645 Net Plantable (ha) 4,973 4,076 4,250

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45

Asian Plantations

Company Report

11 March 2011

Company Overview
Asian Plantations
Company Description Asian Plantations is involved in the acquisition and development of palm oil plantation land in Sarawak, Malaysia. It currently has three estates which total 15,645 hectares of land, and which are in the process of being planted. Company Strategy

The company is also seeking to become a world leader in Fresh Fruit Bunch "FFB" processing. It is currently building a mill that incorporates proprietary vertical steriliser technology and methane recapture, which is expected to be in operation in 2012. The technology used has been developed by Joint CEO, Graeme Brown.

Value Per Hectare (US$)

The Companys strategy is to acquire under-priced, properly zoned agricultural land in Malaysia, develop it into high-quality palm oil estates and sell it as mature plantation land. It's aiming to increase the size of its land bank to approximately 23,000 hectares by the end of 2011.

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1 2 3 Year 4 5 6

Company's stated objectives


Timing Description

Near term Near term Near term Medium term Medium term Medium term Longer term

Increase land bank to c. 23,000 hectares (from 15,645) Prepare for planting at Incosetia Complete planting of BJ Corporation estate Commission FFB crushing mill which uses vertical sterilising technology & methane recapture Complete planting of Fortune and Incosetia estates Complete planting of existing estates by the end of 2014 so that all palms are producing by 2018 Produce up to 375,000 tonnes of FFB per annum as all three estates reach full maturity

Cash Equity

Mortgage Facility

Equity Uplift

source: Company

Planted area split by estate (all in Sarawak, Malaysia)

Key Products/Services Product Crude Palm Oil

Description Edible oil that is extracted from the pulp of the fruit of the palm. Fortune 32%

BJ Corporati on 31%

Management and Board Name Datuk Amar Leonard Linggi Jugah Graeme Brown Dennis Melka Captain Panir

Non-Executive Chairman Joint CEO & Executive Director Joint CEO & Executive Director

Incosetia 37%

COO

Share Price Drivers Probability Medium High High High

Description Palm Oil Price appreciation FY10 Results - confirmation of the planting schedule and an update on the Mill Additional land acquisitions The key share price driver is an increase in value of the underlying asset base

Expected Events Date Apr-11

Description FY10 Results

Major Share holders Name Keresa Plantations Steadfast Financial Asian Palm Oil Ltd Graeme Brown, Joint CEO & ED Dennis Melka, Joint CEO & ED Datuk Linggi, Non-Executive Chairman Legal and General Asian Agriculture Fund Asian Forestry Holdings Artemis Alpha Trust

% 40% 23% 9% 6% 6% 6% 3% 3% 3% 3%

Recent Corporate Action Date 27 January 2011 30 December 2010 19 November 2010 16 August 2010 31 December 2009 30 November 2009
Source: Company, RCM Estimates

Description Company raised c. $16mn by placing 7.3mn new shares at the price of 220p Fortune Plantation acquisition is completed for c. $12.2mn $1mn bond purchased by AAC, proceeds to be used for working capital Company enters into subscription agreements with institutional investors to raise c. $6.6mn Jubilant Paradise and Incosetia acquisitions are completed for 12.4mn 5.26mn raised through placing of 7nm shares, approximate market cap of 22.8mn

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46

Asian Plantations

Company Report

11 March 2011

Location of the estates


Asian Plantations estates are located in Sarawak Malaysia. We believe there are several advantages to operating in Malaysia, which we describe in detail in the attached industry report.

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47

Asian Plantations

Company Report

11 March 2011

Industry Overview
Industry Overview
Industry & Competitive analysis Industry Description (please refer to sector report for more details) Palm Oil and palm kernel oil are edible oils extracted from the fruit of palm trees. Crude palm oil can be further refined and sold as refined palm oil. Southeast Asia represents 85% of global production and India and China account for >30% of global consumption. Industry Growth Drivers An increase in food demand driven by population growth and rising disposable incomes. 75% of palm oil is used in food products. Substitution of other edible oils, due to health benefits and lower cost (edible oil market share has increased by 50% since 1996). To a lesser degree, an increase in bio-fuel mandates, although Palm Oil accounts for a small percentage of bio-fuels usage. SWOT Analysis

Strengths Land rights (15,645ha in Sarawak, Malaysia) Local relationships/managers on the ground Experienced management team Mill technology (developed by Joint CEO Graeme Brown) The group has applied for RSPO Membership Malaysian advantages (see industry report)

Weaknesses Lack of liquidity/ownership concentration We expect the company to be operating at a loss until FY14

Opportunities Increase in demand for Palm Oil due to: food demand from India & China, substitution effect and bio-fuel demand Tightening restrictions on expansion creates opportunities for existing producers Very few listed developing palm oil plantation companies, immature land trades at a significant discount to mature land

Threats Adverse weather conditions can negatively impact yields Commodity price volatility Some execution risk, delays in planting or mill construction (although management has a proven track record) Potential restrictions on planting`

Porter's Five Forces

New Entrants There are significant barriers to entry in this business (land rights are scarce in Malaysia)

Suppliers Various for fertiliser, most labour is contracted from Indonesia

Industry Competitors Six other London listed, 13+ Malaysian producers listed in Asia, many private plantation owners

Customers Asian Plantations does not refine its own oil - it sells its oil to the Malaysian refineries

Substitutes Other edible oils, although Palm Oil's ' production costs are much lower

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48

Asian Plantations

Company Report

11 March 2011

Directors and Management


DATUK AMAR LEONARD LINGGI JUGAH
Non-Executive Chairman Datuk Amar Leonard Linggi Jugah (Datuk Linggi) has over 36 years experience in the business and legal sectors, successfully building up strong networks with both Government and the private sector. Having graduated from the University of Hull, Datuk Linggi qualified as a barrister, called to the High Court of Borneo in 1969. Upon returning to Malaysia, he became the Deputy Public Prosecutor in the Sarawak Judicial Department from 1969 to 1971. Following this, he entered active politics and was elected as a member of the State Legislative Assembly. Since then, he has served in a variety of political roles including Minister in the Sarawak State Cabinet, Member of Parliament, appointee to the parliamentary Public Accounts Committee and until recently, Secretary General of Parti Pesaka Bumiputra Bersatu Sarawak. As a Bumiputra entrepreneur, Datuk has also been involved in the Malaysian business sector, building up the Limar Group, a diversified group with interests in shipping, property, plantation and timber, of which he remains the Chairman. Datuk is also managing trustee of the Dayak Cultural Foundation and the Chairman of the Tun Jugah Foundation. He is the father-in-law of Graeme Brown.

GRAEME IAIN BROWN


Co-Founder, Joint Chief Executive Officer & Executive Director Graeme Brown co-founded the Company and is primarily responsible for operations. Prior to this, he worked for eight years at Keresa Plantations, where he remains the managing director, over which time he planted and managed a 6,000 hectare palm oil plantation. He is a specialist in plantation planting, palm species and plantation operations, with over 10 years' experience in the industry. He also founded Keresa Mills Sdn Bhd, which has been a pioneer in the successful implementation of advanced milling technologies for FFB processing. He graduated from Otago University in New Zealand.

DENNIS NICHOLAS MELKA


Co-Founder, Joint Chief Executive Officer & Executive Director Dennis Melka co-founded the Company and is primarily responsible for corporate development, acquisitions and finance. Prior to this, and since 2005, Mr Melka was a private venture capitalist and has founded companies in Southeast Asia focused on limited service lodging, sustainable tree plantations, corn plantations, telecommunications and financial services. From 1995 to 2005 he worked in Credit Suisse First Boston's investment banking division. He graduated magna cum laude from the School of Foreign Service at Georgetown University in Washington, D.C.

CAPTAIN PANIR
Chief Operating Officer Captain has over 25 years of experience in planting and managing palm oil estates. He is responsible for all aspects of the in-field operations and community relations. Prior to entering the plantation industry, Captain was a decorated military officer including having been awarded Malaysias highest honour for field bravery in combat.

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49

Company Report
Industrials

11 March 2011 UK listed

Equatorial Palm
BLOOMBERG: PAL LN EQUITY

Equatorial Palm
Rachel Galvez
+44 20 7444 0679

We launch coverage on Equatorial Palm Oil (PAL LN) with a Buy recommendation and a 38p price target which represents 28% upside. Equatorial Palm Oil is involved in the acquisition and development of palm oil plantation land in Liberia, West Africa. Investment case: In our view, the shares trade at a significant discount to

rachel.galvez@religarecm.com

Valuation & Recommendation Share Price 12 month target Previous target Rating Previous % Upside / (Downside) + Dividend yield Total return 28% 0% 28% 29 p 37 p p Buy

Asian plantations (which is also in development) and the developed peers due to execution and political risk, both of which we believe the market is over estimating. We believe execution risk has greatly diminished since the companys AIM listing last year as the company has met many of its operational and financing objectives ahead of schedule. Furthermore, in our view, economic and political risks, stemming from producing in Liberia, have also diminished evidenced by an influx of foreign investment. Valuation: We derive our 38p price target using a DCF methodology and assuming a WACC of 10.2% and a terminal growth rate of 3%. discount on an EV/hectare metric compared to its peers. Catalyst: CPO price increases, FY10 results, (which are likely to update the market on the planting schedule and the mill), and further investments by established competitors in Liberia. Risks: Execution and political risk are the greatest risks to the investment case. Other risks include commodity price volatility, lower yields and a lack of liquidity as a result of large ownership concentration, (BioPalm Energy and JP Morgan Asset Management own 27.5% and 15% of the shares respectively), a small market cap and buy and hold investor mentality. We believe

Company data Market Market cap ( mn / US$ mn) EV ( mn / US$ mn) Shares in issue (mn) Free float (%) 2-month average daily volume (mn) 52 Week high / low (p) AIM 36 / 57 30 / 48 124 1 0.70 35 / 10

this is well supported by the fact that Equatorial Palm is trading at a significant

Share Price
(p) 40.00 30.00
Equatorial Palm Oil PLC Rel to FTSE AIM ALL Share

Financial highlights Year End: 31 Dec Revenue ( mn) EBITDA ( mn) Net Profit (adj) ( mn) EPS (adj) () EV/Sales (x) EV/EBITDA (x) P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) ROCE (post-tax) (%) FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A 0 (1) (1) (0.04) n.a. n.m. n.m. n.m. 0.0 0.5 (21.4) FY10E 0 (1) (1) (0.01) 141.43 n.m. n.m. n.m. 0.0 n.m. (7.8) FY11E 1 (1) (1) (0.01) 34.65 n.m. n.m. n.m. 0.0 68.4 (2.0) FY12E 5 1 0 0.00 9.43 63.3 n.m. n.m. 0.0 n.m. (0.2)

20.00 10.00

0.00 Feb-10 Aug-10 Feb-11

11 March 2011

Share Price Performance 1 month 23.1 Absolute 24.6 Relative*


* Relative to FTSE AIM ALL Share

3 month 47.1 38.2

12 month 109.8 70.6

Equatorial Palm

Company Report

11 March 2011

Investment Case
We launch coverage on Equatorial Palm Oil (EPO) with a Buy recommendation and a DCF based price target of 38p. Strategy. EPO is rehabilitating existing plantations and developing new land in Liberia, West Africa. In our view, the shares trade at a significant discount to Asian plantations (which is also in development) and the developed peers due to execution and political risk, both of which we believe the market is over estimating. We believe execution risk has greatly diminished since the companys AIM listing a year ago due to the operational and financing objectives that have already been met: Exhibit 1: Significant events

Feb-11 Dec-10 Aug-10 May-10 Mar-10 Feb-10


Source:

Completion of JV Mill Installation Delivery of Mill Issue of new equity Operational Update AIM Listing
Company, Investigate

JV with BioPalm has been implemented providing US$22.5mn + agreement to arrange US$30mn loan facility Mill installation for the Palm Bay Plantation is proceeding on schedule Mill delivered to Palm Bay Plantations, construction to take place over the next few months 5mn subscription agreement with BioPalm Energy signed, 33mn new shares at 15p Reactivation of 3,000 ha of existing oil palm plantation has commenced, 220,000 seeds ordered Company raised 6.5mn through initial placing 37mn shares at 17.5p, (market cap of 14.3mn)

We also note the following competitive advantages, which further reduce execution risk. Land rights. The company has 169,000 hectares of land. Most of the land has already been logged, and therefore there no risk of restrictions on expansion being imposed due to deforestation concerns. Management experience and expertise. Peter Bayliss, Managing Director and Geoff Brown, Plantations Director, have over 20 and 40 years of industry experience respectively. Sustainability. Given the industrys recent focus on sustainability and social responsibility, we believe a commitment to being RSPO compliant is necessary for medium and longer term growth. Management has experience working with the RSPO and is in the process of obtaining RSPO certification. In our view, economic and political risks, stemming from producing in Liberia, have also diminished. (Please refer to the sector report for more details) Liberia has been relatively stable since Ellen Johnson-Sirleaf (who was Harvard educated and who worked for both the UN and the World Bank) was elected head of state in 2006. Under Mrs. Johnson-Sirleafs government, Liberias IMF status has been restored, debt has been reduced and the countrys infrastructure has improved. Encouragingly, IMF is forecasting Liberian GDP to grow 9.0% in 2011. Foreign investment in Liberia has increased and we are comforted by the fact that both Sime Darby and Golden Agri Resources have invested in Liberia with plans to develop oil palm plantations.

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51

Equatorial Palm

Company Report

11 March 2011

Company Valuation
Year End: 31 Dec Per Share data () EPS (adj) DPS Book value Valuation ratios EV/Sales (x) EV/EBITDA (x) EV/Capital Employed P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) P/BV (x) FY07A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A (0.04) 0.00 0.1 n.a. n.m. n.a. n.m. n.m. 0.0 0.5 2.5 FY10E (0.01) 0.00 0.1 141.43 n.m. 2.8 n.m. n.m. 0.0 (21.5) 2.3 FY11E (0.01) 0.00 0.1 34.65 n.m. 1.2 n.m. n.m. 0.0 68.4 2.4 FY12E 0.00 0.00 0.1 9.43 63.3 1.1 n.m. n.m. 0.0 (32.4) 2.4

We derive our 38p price target using a DCF methodology and assuming a WACC of 10.2% and a terminal growth rate of 3%. Below is the DCF sensitivity analysis. Exhibit 1: DCF Sensitivity Analysis

Terminal Growth Rate

38.08 2.0% 3.0% 4.0%

DCF Sensitivity Analysis WACC 8.0% 9.0% 10.0% 69p 78p 91p 51p 56p 63p 38p 41p 44p

11.0% 28p 30p 32p

12.0% 21p 21p 22p

Source:

RCM Estimates

We believe our share price target is well supported by the fact that Equatorial Palm is trading at a significant discount on an EV/ha metric, compared to its London listed peers, and to Asian Plantations (which is also in development) as illustrated below. Exhibit 2: London listed comparables
London listed New Britain Palm Oil REA Holdings Anglo-Eastern Plantations MP Evans Group Narborough Plantations Average London listed in development Asian Plantations Equatorial Palm Oil Mkt Cap US$mn 2,283 389 495 401 16 EV US$mn 2,254 770 512 414 12 Plantation location Papua New Guinea Indonesia Indonesia Indonesia (Australian cattle) Malaysia Mature hectares 78,000 22,000 35,000 14,071 555 EV/ha (US$) 28,897 35,012 14,629 29,422 21,657 25,923

129 55

168 46

Malaysia Liberia

Land rights - hectares 15,645 169,000

8,245 325

Source:

Bloomberg, RCM Estimates

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52

Equatorial Palm

Company Report

11 March 2011

Cash Flow
We believe Equatorial Palm will be cash flow positive (FCF to the firm) from FY14E due to the fact that we are forecasting positive PBT from FY13 and declines in capex as the land becomes mature and the mill is commissioned. The charts below illustrate our forecasts.

Exhibit 3: FCF mn We are forecasting FCF to the firm to be negative through FY13......

FY09A 0.00 -2.00 -4.00 -6.00 -8.00 -10.00 -12.00 -14.00


Source:

FY10E

FY11E

FY12E

FY13E

Company, RCM Estimates

Exhibit 4: FCF mn .... largely due to capex expenditures.


2.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 -14.0
Source: Company, RCM estimates

PBT FY09A FY10E FY11E FY12E FY13E Depreciation & Amortisation Change in Working Capital Other Capital Expenditure Tax paid

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Equatorial Palm

Company Report

11 March 2011

Financials & Forecast analysis


P&L Drivers 1. Revenue Drivers Price: The price of Crude Palm Oil is driven by industry supply and demand dynamics (see industry report for details). Volume: Volumes will increase substantially as the company continues to progress on its rehabilitation and planting schedule. M&A: Significant economies of scale exist in the industry. Additional land acquisitions are not likely as the company has 169,000 ha. In Liberia, Sime Darby and Golden Agri Resources have the rights to 220,000 and 240,000 ha respectively. FX: The company reports in GBP, Palm Oil sales reflect the global US$ price, and most costs (fertiliser, land, machinery) are in US$ denominated currencies. 2. EBIT Margin Drivers EBIT margin expansion is driven by improvements in yields, which are significantly lower in West Africa due to impacts from the dry season, but should improve over time with improvements in seed technology. Raw materials: Include fertiliser (potash), seeds and steel for the mill. Fixed costs/op. gearing: High fixed cost business, the upfront capital costs are significant.

Cash Flow Drivers


1.

Working capital movements: We expect significant cash outflows from working capital as the company becomes revenue generating, which is typical of companies that are in the early stage of development. Capital expenditure: We estimate the cost of planting and rehabilitating the land to be 10mn for FY12-FY14 plus an additional $15mn in FY14 for mill construction. We are forecasting capital expenditure to decline dramatically in FY15. Dividend payments: As the company is in its early stage of development, we are not forecasting it to pay a dividend in the medium term. Overall free cash generation: Fully developed Palm Oil Producers are very cash generative. We are forecasting Equatorial Palm to be cash flow positive (FCF to the firm) in FY15.

2. 3. 4.

Balance Sheet Issues 1. Debt: We are forecasting an increase in net debt levels due to rehabilitation, planting and mill construction. The company is well financed and recently announced a JV with BioPalm Energy, which will provide $22.5mn of equity investment and a guarantee to a $30mn loan facility. Expected debt levels are high (relative to developed plantation companies) due to the fact that upfront capital requirements are considerable in this industry. We would expect net debt/equity and net debt/ebitda ratios to normalise as the company increases its production. Other liabilities/assets: The companys land assets, all in Liberia are as follows: Planted 5,600 4,000 Unplanted 8,564 3,411 Expansion 20,234 47,139 80,000 9,600 11,975 147,373 Total 34,398 54,550 80,000 168,948

2.

Plantation (ha) Palm Bay Butaw River Cess Total

Equatorial Palm has constructed a palm oil processing mill (built by Modipalm Engineering in Malaysia), which is currently being commissioned.

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Equatorial Palm

Company Report

11 March 2011

Company Forecasts and Metrics


Profit and Loss statement
All figures in ( mn)

Profitability & Returns (%)


FY09A 0.0 0.0 (0.7) (0.8) (0.2) 0.0 (1.2) (1.2) 0.0 0.0 (1.2) (1.2) 32 (0.04) (0.04) 0.00 FY10E 0.2 0.1 (1.0) (1.1) (0.1) 0.0 (1.2) (1.2) 0.0 0.0 (1.2) (1.2) 124 (0.01) (0.01) 0.00 FY11E 1.0 0.6 (0.6) (0.9) 0.0 0.0 (0.9) (0.9) 0.0 0.0 (0.9) (0.9) 124 (0.01) (0.01) 0.00 FY12E 5.0 2.8 0.7 0.6 (0.7) 0.0 (0.1) (0.1) 0.0 0.0 (0.1) (0.1) 124 0.00 0.00 0.00 Y/E 31 Dec Gross margin EBITDA margin EBIT margin Net profit margin Tax rate RoE ROCE (post-tax) FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A n.a. n.a. n.a. n.a. n.a. (33.0) (21.4) FY10E 55.0 (477.7) (509.7) (575.1) n.a. (12.6) (7.8) FY11E 55.0 (55.7) (84.9) (86.2) n.a. (5.8) (2.0) FY12E 55.0 14.9 11.9 (1.9) n.a. (0.7) (0.2)

Y/E 31 Dec Revenue Gross profit EBITDA EBIT Net interest/inc./(exp.) Exceptional items Pre-tax Profit (stated) Pre-tax Profit (adj) Tax paid Minorities Net Profit (stated) Net Profit (adj) Shares outstanding (mn) EPS (stated) EPS (adj) DPS

FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Growth (YoY, %)
Y/E 31 Dec Revenue EBITDA Net profit EPS Dividend Capital employed FY08A n.a. n.a. n.a. n.a. n.a. n.a. FY09A n.a. n.a. n.a. n.a. n.a. n.a. FY10E n.a. 35.7 0.5 (74.1) n.a. 175.4 FY11E 384.5 (43.5) (27.4) (27.4) n.a. 185.7 FY12E 386.8 (230.2) (89.0) (89.0) n.a. (0.2)

Cash Flow statement


All figures in ( mn)

Cash Conversion & Capital Intensity metrics


FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A (0.8) 0.0 0.6 0.3 (0.3) (0.8) 0.0 (1.2) 0.0 0.0 0.0 0.0 0.0 (1.9) FY10E (1.1) 0.1 (2.0) (0.1) (3.2) (2.5) 0.0 (5.7) 0.0 0.0 13.2 0.0 (7.7) 5.6 FY11E (0.9) 0.6 (0.3) (0.3) (0.9) (4.8) 0.0 (5.6) 0.0 0.0 0.0 0.0 24.4 0.0 FY12E 0.6 0.3 (1.6) (0.2) (1.6) (10.0) 0.0 (11.6) 0.0 0.0 0.0 0.0 (11.6) (11.6) Y/E 31 Dec Fixed Assets/Sales (%) Working Capital/Sales (%) Working Capital (days) Inventory (days) Payables (days) Receivables (days) Op. Cash Flow/EBIT (%) CAPEX/depreciation (%) Free Cash Flow/Sales (%) Dividend cover (x) FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. FY09A n.a. n.a. n.a. n.a. n.a. n.a. 43.5 3,687.0 n.a. n.a. FY10E 72.5 157.3 (1,140) 69 2,091 882 290.9 3,708.8 (2,669.3 ) n.a. FY11E 155.4 60.4 170 83 151 237 100.2 1,583.3 (546.3) n.a. FY12E 57.4 44.7 104 49 27 82 (262.4) 6,666.7 (230.7) n.a.

Y/E 31 Dec EBIT Depreciation & Amortisation Change in Working Capital Other Operating Cash Flow Capital Expenditure Tax paid Cash Flow to the Firm Dividends Acquisitions & Disposals Proceeds from Share Issues Currency Adjustments Free Cash Flow to Equity Year End Net Cash/(Debt)

Balance Sheet & Leverage ratios


Y/E 31 Dec FY08A FY09A FY10E FY11E FY12E Net Debt/Equity (%) n.a. 52.6 n.a. 0.2 78.9 Net Debt/EBITDA (x) n.a. n.a. 5.5 n.a. 15.5 Gross Debt/Free Cash Flow (x) n.a. (1.7) 0.0 (5.3) (2.6) Net interest cover (x) n.a. (4.5) (7.8) (64.8) 0.9 Cash interest cover (x) n.a. n.a. n.a. n.a. n.a.

Balance Sheet
All figures in ( mn)

Y/E 31 Dec Tangible Fixed Assets Intangibles Assets Associates & Investments Working Capital Other Assets of which: tax assets Other Liabilities of which: tax liabilities of which: pension liabilities Cash & Cash Equivalents Total Capital Employed Gross Debt of which: short term of which: long term Shareholders Equity Minorities Total Capital Employed

FY08A n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

FY09A 0.1 7.2 0.0 (1.7) 0.0 0.0 0.0 0.0 0.0 0.1 5.7 2.0 2.0 0.0 3.7 0.0 5.7

FY10E 0.3 8.2 0.0 0.3 1.3 0.0 0.0 0.0 0.0 5.6 15.7 0.0 0.0 0.0 15.7 0.0 15.7

FY11E 3.0 8.2 0.0 0.6 3.0 0.0 0.0 0.0 0.0 30.0 44.8 30.0 0.0 30.0 14.8 0.0 44.8

FY12E 2.8 8.2 0.0 2.2 13.0 0.0 0.0 0.0 0.0 18.4 44.7 30.0 0.0 30.0 14.7 0.0 44.7

Revenue drivers

Mature Area (HA) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

Total FFB ('000 MT) 900 800 700 600 500 400 300 200 100 0

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55

Equatorial Palm

Company Report

11 March 2011

Company Overview
Equatorial Palm Oil
Company Description Equatorial Palm Oil is involved in the acquisition and development of palm oil plantation land in Liberia, Africa. It currently has three estates which total 169,000 hectares of land rights, and which are in the process of being planted. Planted area split by estate (all in Liberia) Company Strategy The Companys strategy is to rehabilitate existing palms and develop nurseries for new planting. We expect CPO to soon be produced from fruit obtained from the reactivation of 3,000 hectares of the Palm Bay Plantation and note that last August, a palm oil processing mill was delivered from Malaysia. The mill is currently being installed and expected to be commissioned this year. With land becoming increasingly scarce in South East Asia, Equatorial Palm Oil is focused on Liberia, a country that has just recently achieved political stability. The Oil Palm is native to West Africa, and although yields are relatively lower than those compared to Southeast Asia, growing conditions are excellent and investment has increased substantially in recent years (both Arcelor Mittal and Sime Darby have invested in Liberia). River Cess 47% Palm Bay 21%

Butaw 32% Company's stated objectives


Timing Description

Near term Near term Near term Near term Medium term Long term Long term Long term

Quickly establish CPO production and generate early stage cash flow Commission processing mill in FY2011 Continue to develop & expand nurseries for new planting Rehabilitate existing oil palm for continual harvesting Further develop downstream infrastructure 10 year target of over 50,000 ha producing 250,000 tonnes of CPO per annum Eventually plant over 100,000 ha Continue to be committed to operate in a sustainable manner

Key Products/Services Product Crude Palm Oil

Description Edible oil that is extracted from the pulp of the fruit of the palm

Major Share holders Name Biopalm Energy JP Morgan Asset Management Joseph Jaoudi (NED) Michael Frayne

% 27.5% 15.0% 5.4% 5.3%

Management and Board Name Michael Frayne Peter Bayliss Geoffrey Brown Allen Yancy Tim Daniel

Executive Chairman Managing Director Executive Plantations Director Director of Corporate Affairs Chief Financial Officer

Share Price Drivers Probability Medium High High

Description Palm Oil Price appreciation FY10 Results - confirmation of the planting schedule and an update on the Mill The key share price driver is an increase in value of the underlying asset base

Expected Events Date Apr-11

Description FY10 Results

Recent Corporate Action Date 03 February 2011 27 May 2010 26 February 2010 Source: Company, RCM Estimates

Description JV with BioPalm has been implemented providing US$22.5mn + $30mn loan facility 5mn subscription agreement with BioPalm Energy signed, 33mn new shares at 15p Company raised 6.5mn through initial placing 37mn shares at 17.5p, (market cap of 14.3mn)

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56

Equatorial Palm

Company Report

11 March 2011

Description/location of estates
Palm Bay Plantation: (34,398 ha of land) is 30km southeast of Buchanan (shown on the map below) and approximately an hour to drive on what was formerly a logging gravel road. Currently the Port of Buchanan is not capable of accepting large commercial ships but this is likely to change due to investment by companies such as Arcelor Mittal. Butaw Plantation: (54,550 ha of land) is 20km and approximately a 1 hour drive from Greenville (shown on the map below). There are companies who provide sea freight services from Monrovia to Greenville but the port can currently only accept small vessels. River Cess County area: (80,000 ha of land) is indicated on the map below.

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57

Equatorial Palm

Company Report

11 March 2011

Industry Overview
Industry & Competitive analysis Industry Description (please refer to sector report for more details) Palm Oil and palm kernel oil are edible oils extracted from the fruit of palm trees. Crude palm oil can be further refined and sold as refined palm oil. Southeast Asia represents 85% of global production and India and China account for >30% of consumption. Industry Growth Drivers An increase in food demand driven by population growth and rising disposable incomes. 75% of palm oil is used in food products. Substitution of other edible oils, due to health benefits and lower cost (edible oil market share has increased by 50% since 1996). To a lesser degree, an increase in bio-fuel mandates, although currently only a small share of Palm Oil goes towards bio-fuels usage.

SWOT Analysis

Strengths Land rights (169,000 ha in Liberia) Experienced management team (Geoff Brown and Peter Bayliss) The group has applied for RSPO Membership Most of the land has already been logged (no deforestation issues) First mover advantage in Liberia

Weaknesses Lack of liquidity due to ownership concentration, and buy and hold investors We expect the company to be operating at a loss until FY13

Opportunities Increase in demand for Palm Oil due to: food demand from India & China, substitution effect and bio-fuel demand Tightening restrictions on expansion creates opportunities for existing producers Very few listed developing palm oil plantation companies, immature land trades at a significant discount to mature land

Threats Adverse weather conditions can negatively impact yields, which are typically lower than in Southeast Asia Commodity price volatility Some execution risk, delays in rehabilitation, planting or mill construction Potential political instability in Liberia

Porter's Five Forces

New Entrants There are significant barriers to entry in this business (land rights are difficult to obtain in Liberia and significant upfront capital is required)

Suppliers Various for fertiliser, special seeds required for West Africa, local labour relatively cheap (Liberia has c. 85% unemployment)

Industry Competitors Six other London listed, Sime Darby and Golden Agri Resources have plans to develop 220,000 and 240,000 ha in Liberia respectively

Customers Equatorial Palm does not refine its own oil - it sells its oil to refineries

Substitutes Other edible oils, although Palm Oil's production costs are much lower

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58

Equatorial Palm

Company Report

11 March 2011

Directors & Management


Michael Frayne Executive Chairman
Mr. Frayne has a Bachelor of Commerce Degree majoring in accounting and finance, a Bachelor of Science Degree majoring in Geology and a Postgraduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. He is a Chartered Accountant and a member of the Australian Institute of Mining and Metallurgy. He was previously employed at, Ernst & Young, and consulted to a number of resource and commodity companies. He then worked directly in the resource industry including Great Central Mines Ltd (now part of Newmont Ltd). He then joined the corporate team of Minara Resources Ltd (formerly Anaconda Nickel Ltd), the majority owner of the Murrin Murrin Nickel Cobalt Project in Western Australia whose major investors were Anglo American Group and Glencore International. Since 2002, Michael has provided corporate management and advice to the resource, commodity and energy sectors, successfully listing several companies with projects in Australia, Southern Africa, Asia, North and South America, onto AIM and the Australian Stock Exchange. Most recently Michael founded and was the joint managing director of Asia Energy plc. Michael is one of the founders of the Company, overseeing the companys strategy, performing day-to-day executive duties and building the senior management team.

Peter Bayliss Managing Director


Peter Bayliss has nearly 20 years experience in the plantation sector. He holds Bachelor of Science Degree from the University of London and a Masters of Business Administration from the University of Bath. He joined New Britain Palm Oil Development in 1988 where he was involved in all aspects of business operations. His last position held was as project manager responsible for the development of 9,000 hectares of oil palm and the establishment of a cattle stud and feedlot. In 1996, he was seconded to PT PP London Sumatra Indonesia where he was directly responsible for the implementation in Indonesia of a 10 year program to plant 187,000 hectares of oil palm and 26,000 hectares of rubber throughout Indonesia. Prior to this he was a key member of the senior management team with PT Agro Muko (a subsidiary of the SIPEF NV group) and responsible for all aspects of agricultural policy and quality control on 20,000 hectares of oil palm and rubber development in Sumatra.

Geoffrey Brown Executive Plantations Director


Geoffrey Brown has over 38 years experience in the plantation sector. He joined Harrisons & Crosfield plc in Malaysia in 1962 where he was employed on various plantations growing oil palm and rubber. He moved to Indonesia in 1976 and was made responsible for Harrisons & Crosfields interests in that country. He was appointed executive Chairman of London Sumatra Indonesia in 1982 and remained Managing Director of this large Indonesian plantation company until 1998. In 1990, he was appointed an executive director of Harrisons & Crosfield Plc, responsible for the plantation division. Harrisons & Crosfield Plc owned and managed plantations of rubber, oil palms, cocoa, coffee and tea in Indonesia, and oil palm and coffee in Papua New Guinea. He remained an executive director of Harrisons & Crosfield Plc until the company divested itself of its plantation interest in 1994. In 1999 and 2000, he co-ordinated the expansion of oil palm plantations belonging to the Musim Mas Group in Indonesia and has since then been a consultant specialising in plantation management.

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59

Equatorial Palm

Company Report

11 March 2011

Allen Yancy, III - Director of Corporate Affairs


Allen Yancy has been involved extensively in Liberian business and politics since the late 1970s. Allen served as Managing Director from 1980 to 1985 and Deputy Managing Director of the Liberian Sugar Corporation from 1978 to 1980. This was a pioneering industry in Liberia and was a fully integrated business model from the growing of sugar cane through to the industrial processes of sugar refining. Mr Yancy during his time at Liberian Sugar managed a large team of agronomists, engineers and line managers. Allen has been extensively involved at senior levels of government and business in Liberia for most of his life.

Tim Daniel Chief Financial Officer


Tim Daniel is a Qualified Chartered Accountant and previously worked at KPMG, with clients mostly in the natural resources and small-cap sectors. Tim subsequently worked as an investment analyst with a London-based hedge fund, focussing on the high yield bond market.

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60

Company Report
Industrials

11 March 2011 UK listed

M P Evans
BLOOMBERG: MPE LN EQUITY

MP Evans
Rachel Galvez
+44 20 7444 0679

We launch coverage on MP Evans with a Buy recommendation and a 545p price target which represents 17% upside. MP Evans owns and operates Palm Oil plantations through associates in Indonesia and Malaysia. The group also has beef cattle interests in Australia through its 34% share in the North Australian Pastoral Company and 100% stake in Woodlands aggregation. Investment case: In our view, growth will come from both the Indonesian palm oil and the Australian cattle businesses. More specifically, we expect growth in the palm oil business to be driven by new planting programs, the commissioning of a new mill and improvements in yields (due to the planting cycle). Growth in the cattle business is likely to come from increased capacity given the inherent economies of scale in the cattle business. Additional value is likely to be realised from disposal of the Woodland business (c. US$40mn) and the remaining Malaysian property assets (c. US$50mn). Valuation: We derive our price target using a DCF methodology assuming a WACC of 9.7% and a terminal growth rate of 3%. peers. Catalysts: CPO price increases, positive FY10 results, and any We also note that MP Evans trades on a discount on an EV/mature hectare basis relative to its Asian

rachel.galvez@religarecm.com

Valuation & Recommendation Share Price 12 month target Previous target Rating Previous % Upside / (Downside) + Dividend yield Total return 17% 0% 17% 466 p 545 p p Buy

Company data Market Market cap ( mn / US$ mn) EV ( mn / US$ mn) Shares in issue (mn) Free float (%) 2-month average daily volume (mn) 52 Week high / low (p) AIM 252 / 404 261 / 419 54 89 0.03 501 / 318

announcements regarding additional land acquisitions and asset disposals. Risks: Risks to our investment case include commodity price volatility and any negative impact on yields or cattle production stemming from adverse weather conditions (such as flooding in Australia).
Share Price
(p) 550.0 450.0
M P Evans Group PLC Rel to FTSE ALL Share

Financial highlights Year End: 31 Dec Revenue (US$ mn) EBITDA (US$ mn) Net Profit (adj) (US$ mn) EPS (adj) (US$) EV/Sales (x) EV/EBITDA (x) P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) ROCE (post-tax) (%) FY08A 30 (2) 25 0.93 12.36 n.m. 8.0 8.0 0.3 8.9 8.9 FY09A 28 (6) 15 0.34 14.08 n.m. 22.0 22.0 (12.2) n.m. 4.9 FY10E 36 (7) 18 0.46 11.57 n.m. 16.3 16.3 (0.2) n.m. 5.4 FY11E 53 1 13 0.32 8.32 831.7 23.3 23.3 1.1 n.m. 3.9 FY12E 69 3 15 0.35 6.33 126.7 21.2 21.2 1.1 0.6 4.3

350.0 250.0

150.0 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

11 March 2011

Share Price Performance 1 month (4.3) Absolute (4.6) Relative*


* Relative to FTSE ALL Share

3 month 0.0 (4.6)

12 month 24.7 14.5

M P Evans

Company Report

11 March 2011

Investment Case
We launch coverage on MP Evans with a Buy recommendation and a DCF based price target of 545p. We believe growth will come from both the Indonesian palm oil and the Australian cattle businesses. Additional value is likely to be realised from asset disposal.

Indonesian Palm Oil


The company has the following subsidiaries and associates: Exhibit 1: Palm Oil subsidiaries and associates
PLANTATION Subsidiaries - Palm Oil Mature Pangkatan Bilah Sennah Simpang Kiri Bertam In development* Bangka East Kalimantan Total subsidiaries Associates - Palm Oil Agro Muko Kerasaan - oil palm Total associates
Source: Company

Ownership

Mature ha

80% 80% 80% 80% 100%

2,250 2,410 1,290 2,287 65

90% 92.5%

1,207 0 9,509

31.53% 38%

17,614 2,044 19,658

We are forecasting yields to improve in the majority owned subsidiaries due to the planting cycle. Additionally, we expect growth to be driven by the development of the new estates and the commissioning of the new mill. We highlight RSPO membership, managements industry knowledge and experience and the companys current land rights as competitive advantages in this industry.

Australian Cattle Business


MP Evans currently owns Woodlands Aggregation and has a minority holding in North Australian Pastoral Company (NAPCO), both of which were loss making in FY2009. It plans to dispose of the Woodlands business and focus on NAPCO. Construction work at NAPCOS feedlot expansion has begun and given the economies of scale in the business, additional capacity should increase earnings and margins going forward.

Asset Disposal
Although we have not factored it into our forecasts, asset disposal and redeployment of the capital to more productive uses should provide additional value to share holders. The company has chosen to focus on Indonesian Palm Oil and NAPCO, and has already disposed of five estates in Malaysia and its Thai rubber factory (the Sungei Kruit and Perhentian Tinggi estates in Malaysia being the most recent). We believe the company will dispose of the remaining Malaysian assets (estimated to be worth US$50mn) and the Woodlands business (estimated to be worth $US40mn).

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62

M P Evans

Company Report

11 March 2011

Company Valuation
Year End: 31 Dec FY07A FY08A FY09A FY10E FY11E FY12E

Per Share data (US$) EPS (adj) DPS Book value Valuation ratios EV/Sales (x) EV/EBITDA (x) EV/Capital Employed P/E (x) P/E (recurring) (x) Dividend yield (%) Free Cash yield (%) P/BV (x)

0.80 0.10 4.2 18.89 n.m. 1.7 9.4 9.4 1.3 1.2 1.8

0.93 0.02 4.7 12.36 n.m. 1.4 8.0 8.0 0.3 8.9 1.6

0.34 (0.91) 5.1 14.08 n.m. 1.3 22.0 22.0 (12.2) (2.1) 1.5

0.46 (0.01) 5.4 11.57 n.m. 1.3 16.3 16.3 (0.2) (4.5) 1.4

0.32 0.08 5.6 8.32 831.7 1.3 23.3 23.3 1.1 (5.2) 1.3

0.35 0.08 5.9 6.33 126.7 1.3 21.2 21.2 1.1 0.6 1.3

We derive our 545p price target using a DCF methodology and assuming a WACC of 9.7% and a terminal growth rate of 3%. Below is the DCF sensitivity analysis. Exhibit 2: DCF Sensitivity Analysis
WACC 9.5% 564 554 542

544.71 3.0% 3.5% 4.0%

8.0% 733 728 722

8.5% 667 660 650

9.0% 612 602 591

10.0% 523 513 501

10.5% 487 477 465

11.0% 455 445 434

Source:

RCM Estimates

Terminal Growth Rate


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Revenue forecasts
Our revenue forecasts are driven by our underlying assumptions on volumes, which is a function of yields. Our yield assumptions for the Palm Oil business are on the following page.

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63

M P Evans

Company Report

11 March 2011

Exhibit 3: Subsidiary assumptions


2010F Pangkatan, Bilah & Sennah Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Simpang Kiri Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Bangka Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Kalimantan Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Total FFB (tonnes) CPO production (tonnes) CPO extraction rate 2,200 3,000 1.4 199,280 33,403 17% 3,650 10,000 2.7 221,736 39,384 18% 5,100 61,200 12.0 284,790 53,432 19% 1,448 22,717 15.7 1,688 28,179 16.7 1,929 34,123 17.7 2287 41,931 18.3 2287 44,218 19.3 2287 45,361 19.8 6,024 131,633 21.9 6,097 139,339 22.9 6,171 144,106 23.4 2011F 2012F

Exhibit 4: Associate assumptions


2010F Agro Muko Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Kerasaan Mature Land (ha) FFB (tonnes) FFB Yield MT/ha Total FFB (tonnes) CPO production (tonnes) CPO extraction rate 2,044 52,000 25.4 400,973 86,444 22% 2,044 52,000 25.4 400,973 88,563 22% 2,044 52,000 25.4 400,973 90,683 23% 16,537 348,973 21.1 16,537 348,973 21.1 16,537 348,973 21.1 2011F 2012F

Source: RCM Estimates

Peer Group Comparison


We note that on an EV/Mature hectare basis that MP Evans trades on a discount to many of its Asian Peer group. Exhibit 5: Peer Group Comparison
Asian listed Wilmar International Ltd Sime Darby IOI Corp Kuala Lumpur Kepong Golden Agri-Resources Indofood Agri Resources Genting Plantations United Plantations Hap Seng IJM Plantations Sarawak Oil Palms United Malacca Far East Holdings Unico-Desa Plant Chin Teck Plant Kwantas Corp Average Mkt Cap US$mn 26,637 18,007 12,617 7,339 6,400 2,598 1,974 1,201 777 744 501 458 337 300 259 222 EV US$mn 29,633 19,022 13,984 7,617 5,713 2,598 1,848 1,037 770 674 522 416 327 331 198 428 Plantation location Malaysia & Indonesia Malaysia & Indonesia (land in Liberia) Malaysia Malaysia Indonesia (land in Liberia) Indonesia Malaysia & Indonesia Malaysia & Indonesia Malaysia Malaysia & Indonesia Malaysia Malaysia Malaysia Malaysia Malaysia & Indonesia Malaysia Mature hectares 235,000 531,000 251,000 144,977 442,500 130,510 54,000 32,000 33,000 23,000 30,000 14,000 14,000 12,000 12,000 14,000 EV/ha (US$) 126,099 35,824 55,714 52,538 12,911 19,903 34,227 32,415 23,346 29,284 17,399 29,681 23,356 27,557 16,508 30,564 35,458

London listed New Britain Palm Oil REA Holdings Anglo-Eastern Plantations MP Evans Group Narborough Plantations Average

Mkt Cap US$mn 2,283 389 495 401 16

EV US$mn 2,254 770 512 414 12

Plantation location Papua New Guinea Indonesia Indonesia Indonesia (Australian cattle) Malaysia

Mature hectares 78,000 22,000 35,000 14,071 555

EV/ha (US$) 28,897 35,012 14,629 29,422 21,657 25,923

Source:

Bloomberg

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64

M P Evans

Company Report

11 March 2011

Financials & Forecasts analysis


P&L Drivers
1. Revenue Drivers

Price: The company does not sell forward as the export tax imposed is based on the market price. The Eastern Young Cattle Indicator (EYCI) gives an indication in Australian cents/kg carcass of cattle prices in Australia. Volume: Is a function of yields, (Fresh fruit bunches "FFB" per hectare and CPO extraction rate), and land under cultivation increases (which we are not incorporating into our forecasts). M&A: Further land acquisitions and a larger stake in NAPCo would increase revenue. FX: Some exposure to the Indonesian Rupiah since plantation labour is paid in local currency, other costs (land and fertiliser) are paid in US$ denominated currency, Palm Oil sales reflect the global US$ price, cattle business (sales and costs) are in A$. 2. EBIT Margin Drivers Given the economies of scale in both the Indonesian Palm Oil and Australian Cattle businesses, as land under cultivation increases, so will earnings and margins. Improvement in yields also drives margin expansion. 3. Tax rates. Indonesia currently imposes a progressive export tax based on the Market CPO price.

Indonesia Export Tax


30% 25% 20% 15% 10% 5% 0%
$300 $350 $400 $450 $500 $550 $600 $650 $700 $750 $800 $850 $900 $950 $1,000 $1,050 $1,100 $1,150 $1,200 $1,250 $1,300 $1,350 $1,400 $1,450 $1,500

Tax rate

CPO Price
Cash Flow Drivers 1. Capital expenditure: We are forecasting an increase in capex in FY11 to a peak US$45mn due to planting and mill construction and then believe capex will decline towards normalized levels going forward. Other investing cash flow. Other investing cash flow (historically and going forward) consists of dividends from associates, as the associates pay out as much as 85% of profits. Dividend payments: we are forecasting a flat dividend going forward as guided by the company. FCF. We estimate that the company will be cash flow positive from FY12.

2.

3. 4.

Balance Sheet Issues


1.

Debt: The majority of the debt on the balance sheet (c. US$23mn) is in the form of bank overdrafts payable within a year (although they can be rolled over) secured against the Woodland cattle assets.

2. Subsidiaries and associates. Through its subsidiaries and associates and accounting for its stake, MP Evans has rights to 14,071 hectares of mature land and 23,138 of planted land. 3. Non-palm oil business. The company also has a 100% stake in Woodlands Aggregation (31,000 hectares), which it is looking to dispose of and a 34.37% stake in NAPCO (5.8mn hectares), both in the Australian cattle business. Additionally, it has a 40% stake in Bertam Properties, a property development operation that it is also looking to exit.

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65

M P Evans

Company Report

11 March 2011

Company Forecasts and Metrics


Profit and Loss statement
All figures in (US$ mn)

Profitability & Returns (%)


FY09A 28.4 14.2 (6.1) (8.6) (0.6) 0.0 0.8 0.8 (6.2) (2.5) (7.9) 15.2 54 0.34 0.34 (0.91) FY10E 36.2 22.2 (7.5) (10.6) (1.1) 0.0 6.1 6.1 (6.7) (3.7) (4.3) 17.8 54 0.46 0.46 (0.01) FY11E 52.8 34.9 0.5 (2.9) (0.9) 0.0 22.3 22.3 (5.3) (3.7) 13.4 13.4 54 0.32 0.32 0.08 FY12E 68.9 46.2 3.4 (0.9) (1.0) 0.0 24.4 24.4 (5.7) (3.7) 15.1 15.1 54 0.35 0.35 0.08 Y/E 31 Dec Gross margin EBITDA margin EBIT margin Net profit margin Tax rate RoE ROCE (post-tax) FY08A 52.3 (5.2) (11.9) 83.0 87.1 10.7 8.9 FY09A 50.1 (21.5) (30.4) 53.6 781.9 5.8 4.9 FY10E 61.5 (20.6) (29.4) 49.1 110.9 6.3 5.4 FY11E 66.0 1.0 (5.6) 25.3 23.6 4.5 3.9 FY12E 67.0 5.0 (1.2) 21.9 23.3 4.9 4.3

Y/E 31 Dec Revenue Gross profit EBITDA EBIT Net interest/inc./(exp.) Exceptional items Pre-tax Profit (stated) Pre-tax Profit (adj) Tax paid Minorities Net Profit (stated) Net Profit (adj) Shares outstanding (mn) EPS (stated) (US$) EPS (adj) (US$) DPS (US$)

FY08A 30.4 15.9 (1.6) (3.6) (1.0) 0.0 7.5 7.5 (6.5) (3.8) (2.8) 25.2 53 0.93 0.93 0.02

Growth (YoY, %)
Y/E 31 Dec Revenue EBITDA Net profit EPS Dividend Capital employed FY08A FY09A 42.9 (6.6) 46.2 288.4 (33.4) (39.7) 17.1 (63.6) (80.8) (4,868.0) 7.9 10.5 FY10E 27.4 22.0 16.8 35.1 (98.8) 5.4 FY11E 46.1 (107.1) (24.9) (29.9) (799.1) 3.2 FY12E 30.5 552.3 12.9 10.0 0.4 3.6

Cash Flow statement


All figures in (US$ mn)

Cash Conversion & Capital Intensity metrics


FY08A (3.6) 2.1 (8.9) (15.9) (21.7) (6.3) (6.5) 36.0 (7.9) (5.5) 0.3 (66.7) 35.5 35.5 FY09A (8.6) 2.5 1.0 (7.9) (9.8) (9.3) (6.2) (8.6) (7.2) 0.0 0.1 (41.4) (8.6) 13.8 FY10E (10.6) 3.2 (11.2) 8.1 (0.6) (16.0) (6.7) (14.0) (5.6) (7.1) 1.3 6.1 (18.0) (0.4) FY11E (2.9) 3.5 (5.3) 0.3 15.5 (45.0) (5.3) (16.0) (5.6) 0.0 0.0 104.0 (21.0) (17.7) FY12E (0.9) 4.3 (13.3) 0.3 10.0 (16.0) (5.7) 7.5 (5.6) 0.0 0.0 135.6 2.5 (11.1) Y/E 31 Dec Fixed Assets/Sales (%) Working Capital/Sales (%) Working Capital (days) Inventory (days) Payables (days) Receivables (days) Op. Cash Flow/EBIT (%) CAPEX/depreciation (%) Free Cash Flow/Sales (%) Dividend cover (x) FY08A 384.1 33.7 70 119 112 63 598.3 306.3 118.6 (2.8) FY09A 492.5 55.6 167 121 82 129 113.7 370.8 (30.4) 0.2 FY10E 451.9 63.8 196 103 120 213 6.1 503.6 (38.7) 7.1 FY11E 367.6 52.0 175 91 120 204 (528.3) 1,297.0 (30.4) 3.1 FY12E 320.4 55.0 173 83 104 193 (1,177.1 ) 372.1 10.9 3.5

Y/E 31 Dec EBIT Depreciation & Amortisation Change in Working Capital Other Operating Cash Flow Capital Expenditure Tax paid Cash Flow to the Firm Dividends Acquisitions & Disposals Proceeds from Share Issues Currency Adjustments Free Cash Flow to Equity Year End Net Cash/(Debt)

Balance Sheet & Leverage ratios


Y/E 31 Dec FY08A FY09A FY10E FY11E FY12E Net Debt/Equity (%) n.a. n.a. 0.1 5.5 3.3 Net Debt/EBITDA (x) 22.5 2.3 n.a. 33.4 3.2 Gross Debt/Free Cash Flow (x) 0.6 (2.8) (1.5) (1.0) 1.5 Net interest cover (x) (3.5) (14.3) (9.9) (3.2) (0.9) Cash interest cover (x) n.a. n.a. n.a. n.a. n.a.

Balance Sheet
All figures in (US$ mn)

Y/E 31 Dec Tangible Fixed Assets Intangibles Assets Associates & Investments Working Capital Other Assets of which: tax assets Other Liabilities of which: tax liabilities of which: pension liabilities Cash & Cash Equivalents Total Capital Employed Gross Debt of which: short term of which: long term Shareholders Equity Minorities Total Capital Employed

FY08A 126.2 2.7 1.2 10.2 100.6 2.3 18.1 15.1 0.0 56.5 282.4 21.0 19.0 2.0 249.2 12.2 282.4

FY09A 153.4 2.6 1.2 15.8 114.0 1.4 18.7 16.8 0.0 38.1 312.0 24.3 22.3 2.0 275.5 12.2 312.0

FY10E 173.5 3.4 2.0 23.1 117.5 2.2 20.7 17.3 0.0 20.5 328.9 21.0 19.0 2.0 292.0 15.9 328.9

FY11E 215.0 3.4 2.0 27.5 104.1 2.2 21.5 17.3 0.0 (1.7) 339.3 16.0 14.0 2.0 303.8 19.5 339.3

FY12E 226.7 3.4 2.0 37.9 90.6 2.2 22.8 17.3 0.0 (0.1) 351.4 11.0 9.0 2.0 317.2 23.2 351.4

Revenue driver assumptions


Total FFB (tonnes) 750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000 2008 2009 2010F 2011F 2012F 100,000 90,000 120,000 110,000 CPO production (tonnes) 140,000 130,000

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M P Evans

Company Report

11 March 2011

Company Overview
MP Evans
Company Description MP Evans owns and operates Palm Oil plantations both directly and indirectly through associates in Indonesia and Malaysia. The group also has beef cattle interests in Australia through it's 34% share in the North Australian Pastoral Company (NAPCO) and a wholly owned company, Woodlands Aggregation.

Company Strategy The group will continue to focus on the Indonesian Palm Oil and Australia cattle industries. It plans to expand its Indonesian sustainable palm oil production to c. 400,000 tonnes (from 60,000 tonnes) by expanding its land assets to c. 70,000 ha of palm oil plantations. It also hope to increase its beef-cattle interests in Australia, so that it represents approximately 30% of the group's assets.

Land Assets by Value (FY09A)

Australia 30% Company's stated objectives


Timing Description

Near term Near term Medium term Medium term Medium term Longer term Longer term Longer term

Completely divest from Malaysian & Thai rubber plantations and real estate Within the beef cattle industry, sell Woodlands and focus on NAPCO Investment Aggressively develop and plant immature land Dispose of the remaining Malaysian asset, estimated to be worth $50mn Aim for business to be 70% Palm Oil, 30% Australian cattle - in asset terms Increase total Indonesian areas under oil palm to c .70,000ha of environmentally-sustainable oil palm Expand palm oil production from c. 60,000 tonnes to 400,000 tonnes

Indonesia 53%

Malaysia 17%

Land Assets by Value (Target) Key Products/Services Product Crude Palm Oil Cattle Description Edible oil that is extracted from the pulp of the fruit of the palm. MP Evans has a 34% stake in NAPCo, Australians 2nd largest beef cattle company that owns 1% of the land in Australia.

Australia 30%

Management and Board Name Peter E Hadsley-Chaplin Philip A Fletcher Owen David Wilkinson Tristan RJ Price

Executive Chairman Managing Director Executive Director Finance Director

Indonesia 70%

Share Price Drivers Probability Medium Medium Medium High High

Description Palm Oil Price Increases Positive FY10 Results Any updates regarding additional palm oil estate acquisitions Completing the disposal of the Woodlands estate (estimated to be worth c. US$40mn) Disposal of Malaysian assets (estimated to be worth c. US$50mn)

Major Share holders Name


Private Individuals Alcatel Bell Aberdeen Asset Management JP Morgan Asset Management Director and Related Peter E Hadsley-Chaplin Margaret Mary Hadsley-Chaplin Invesco

%
12% 11% 10% 7% 6% 5% 5% 5%

Expected Events Date Apr-11

Description FY10 Results

Recent Corporate Action/Events Date Description MPE acquired Sandlark for A$2.5mn which was paid for by issuing 389,577 shares to the company's owners, resulting in a 34.4% stake in NAPCO. 05 November 2008 Disposal: sale of the Sungei Kruit Estate (829ha) for c. $22mn is completed 04 August 2008 Disposal: sale of the Perhentian Tinggi Estate (745ha) for c. $20.7mn is completed 28 March 2008

Source: Company, RCM Estimates

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Company Report

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Industry Overview
Industry & Competitive analysis Industry Description (please refer to sector report for more details) Palm Oil and palm kernel oil are edible oils extracted from the fruit of palm trees. Crude palm oil can be further refined and sold as refined palm oil. Southeast Asia represents 85% of global production and India and China account for >30% of consumption. Industry Growth Drivers An increase in food demand driven by population growth and rising disposable incomes. 75% of palm oil is used in food products. Substitution of other edible oils, due to health benefits and lower cost (edible oil market share has increased by 50% since 1996). To a lesser degree, an increase in bio-fuel mandates, although currently only a small share of Palm Oil goes towards bio-fuels usage. SWOT Analysis

Strengths Land & assets Sustainable producer (RSPO members, expect certification this year) Strong managment team Diversification reduces risks associated with all earnings being derived from one product/commodity Industry leading yieldsMP Evans

Weaknesses Few synerigies between Indonesian Palm Oil and Australian cattle businesses

Opportunities Increase in demand for Palm Oil due to: food demand from India & China, substitution effect and bio-fuel demand. Increase in demand for sustainable and traceable Palm Oil. Tightening restirctions on expansion creates opportunities for exisiting producers.

Company Description

Threats Competition - many other producers in Indonesia Indonesian export taxes Adverse weather conditions can negatively impact yields Commodity price volitility

Porter's Five Forces

New Entrants
There are significant barriers to entry in this business (land is becoming increasingly scarce and is very difficult to obatin in Indonesia)

Various suppliers for feriliser and seeds

Bitmap Bitmap Bitmap

Suppliers

Industry Competitors
Many producers in Indonesia 7 London listed Palm Oil producers (2 are in development)

Customers
Oil is sold to refineries

Substitutes
Other edible oils, although Palm Oil 's production costs are much lower

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M P Evans

Company Report

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Board of Management
Peter E Hadsley-Chaplin, MA MBA, Executive chairman
Appointed a director in 1989, chairman in 2010. Former executive chairman of Bertam Holdings PLC and Lendu Holdings PLC. A director of The North Australian Pastoral Company Pty Limited. Former chairman of The Association of the International Rubber Trade. Prior to joining the Group in 1988 he was a commodity broker with C Czarnikow Limited.

Philip A Fletcher, FCA, Managing director


Appointed a director in 1987, managing director in 1991 and executive chairman between 1999 and 2005. Former executive director of Bertam Holdings PLC and Lendu Holdings PLC. Joined the Group in 1982 after initial career in accountancy with KPMG in London and Sydney and in industry with the Rio Tinto plc group.

O David Wilkinson, BSc, Executive director


Appointed a director in 2005. Based in Malaysia, supervising execution of the Groups strategy in Malaysia and with a watching brief over the new Indonesian projects. Former executive director of Bertam Holdings PLC. Formerly a planter with Harrisons Malaysian Plantations Berhad (subsequently Golden Hope Berhad and now Sime Darby Berhad) before involvement in the retail and propertydevelopment sectors in Malaysia.

Tristan RJ Price, MA, MSc, FCA, Finance director


Appointed finance director in 2010. Prior to joining the Group in December 2006 he qualified as a Chartered Accountant with Coopers & Lybrand after which he worked as an economist with the Organisation for Economic Co-operation and Development (OECD) and latterly as head of financial planning and policy at the Foreign & Commonwealth Office.

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Disclaimer
Important Global Disclosures Religare Capital Markets (RCM) is the global brand name for the Religare Capital Markets group which includes Religare Capital Markets Limited and its affiliates worldwide. Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Analysts stock ratings are defined as follows: (Recommendation structure changed with effect from March 1, 2009) Recommendation Interpretation

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Expected absolute returns (%) over 12 months More than 15% Between 15% and 5% Less than 5%

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