7/2/06 KUALA LUMPUR (Dow Jones)--Malaysia's Carotech Bhd. (0076.KU) is targeting a steep rise in net profit as it expands capacity to meet growing global demand for specialty palm-oil extracted products.

"If everything goes according to plan, then net profits (of about MYR12 million per year) will be about six times more in FY08 (ending June 2008)," Chief Financial Officer Andrew Goh told Dow Jones Newswires in an interview.

Listed in April 2005 on Mesdaq, the local technology board, the biotechnology and biodiesel company is planning to invest MYR160 million to increase capacity to process crude palm oil to 345 metric tons a day beginning July 2007, from 45 tons a day currently.

Carotech is borrowing MYR130 million of the required MYR160 million needed for the expansion, while the rest will come from internal funds.
 
Meanwhile, Carotech late Monday said it has bought land for a second plant in northern Perak state that will allow it to export more to the U.S. and Europe.

Carotech uses its own patented methods to extract various types of plant-based nutrients, or phytonutrients, namely vitamin E and A from palm oil. It also produces oleochemicals including methyl ester - used in biodiesel - as byproducts.

"The oleochemicals business is to cover the raw material cost (of the phytonutrients business)," Goh said. Oleochemicals account for about half of revenue and net profit. In the latest reported quarter ended Sept. 30, revenue was MYR12.3 million and net profit was MYR2.9 million.

More recently, "because of the hype about methyl ester, its price has gone up, margins have gone up, and that (the business) has even covered production costs (for the phytonutrients business)," Goh said.

In the past six months, hopes of a surge in crude palm oil demand as Malaysia starts producing and using biodiesel have lifted plantation stocks 17%, leading to a doubling in Carotech's stock price to MYR0.485 midday Tuesday.

The government of Malaysia - the world's biggest palm oil producer - is testing this year the use of blended diesel comprising 5% palm oil-based biodiesel and 95% petroleum diesel.

Citigroup estimates that if Malaysia uses diesel with 5% biodiesel content, then the country's crude palm oil demand will increase by 500,000 metric tons a year, or by about 3.3% of total output.

In addition, biodiesel derived from other vegetable oils is already in use in Europe, particularly in Germany. The European Union is also trying to increase use of biodiesel as the fuel produces less greenhouse emissions than petroleum diesel. It's hoped that Malaysia will be able to tap into this growing demand.

Goh estimates biodiesel is a viable business if crude oil stays above $40 a barrel and crude palm oil is at MYR1,400 a metric ton.

However, even if the biodiesel industry doesn't do as well as stock investors expect, Goh is upbeat about Carotech's prospects due to its product diversity.

"We have four legs to stand on - phytonutrients, biodiesel, oleochemicals and pharmaceuticals," he said. "Our revenue is also twice (of other biodiesel producers) even though our cost structure is the same," he said.

Carotech produces about 80% of the world's supply of the food supplement, tocotrienol, a type of Vitamin E that Goh claims recent research shows may be more effective in fighting the effects of aging, heart disease and a host of other ailments, than the more commonly used type of Vitamin E, tocopherol.

Consequently, Carotech is targeting the $2.5 billion "traditional" Vitamin E supplement market with its tocotrienol, he said.

In addition, Carotech "hasn't been able to sell to the cosmetic industry" due to the company's small capacity, Goh said. Tocotrienol is used in anti-aging and antioxidant creams - a burgeoning part of the cosmetics business.

Tests are also ongoing in Malaysia and elsewhere on the efficacy of tocotrienol in combating cancer and other ailments, Goh said. "There may be an opportunity to move from quasi pharmaceuticals to pharmaceuticals," he said.