15/01/2013 (The Star) -  RHB Research Institute expects Fitters Diversified to likely temporarily "go slow" on the signing of new third-party green palm oil milling joint ventures on the back of the depressed prices of end-product dried long fibre of late.

It said on Tuesday the decline in prices of the predominantly China-bound dried long fibre has effectively turned one of the three earnings drivers of the business model, that is offtake spread, to a drag on the bottomline.

"However, we believe this is only a soft patch and the situation should normalise once prices of dried long fibre recover on the back of a stronger manufacturing/export sector in China," said the research house.

RHB Research said Fitters was exploring new markets for its dried long fibre to reduce its reliance on China.

"Over the longer term, there are also plans to put in more investment so that the dried long fibre produced can be processed further into biofuel pellets that are in high demand in Europe and enjoy better and more stable pricing," it said.

RHB Research said earnings impact from the third-party green palm oil milling ventures will be felt from FY12/13, and based on its projection, their contributions to group profits (EBITDA plus associates) will rise from 3% in FY12/13 to 8% in FY12/14 and 22% in FY12/15, making Fitters a "must-have" stock listed on Bursa Malaysia for green/growth funds.

"We value Fitters at RM0.85 based on 8.0 times FY12/13 EPS, in line with our one-year forward target PER for companies with a comparatively small market capitalisation," it said.