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Reaping The Bounty Of Agar Trees
Published: Thursday September 26, 2013 STORY AND PHOTOS BY GRACE CHEN http://www.thestar.c….0&h=413&crop=1 More than meets the eye: Some of the agar tree products at the visitors’ centre. Daily sales on weekends can touch RM100,000. The Gaharu Tea Valley in Gopeng took a total of RM40mil to set up and has a current workforce of 100. On weekends, 2,000 visitors contribute to a rough estimate of RM100,000 in daily sales of tea, biscuits, instant noodles, miracle beauty powders, incense, perfume and oils — all harvested from the surrounding agar trees, standing some 200,000 strong in the 121ha (330 acres) plantation that needs about half a million ringgit a month to run. It took managing director, David Ho, 21 years to build up the business, starting in1992 when he received the first 200 mother trees from a Japanese botanist from Niigata. It took another 15 years of Ho’s personal care before he could get the seeds for replanting, sustaining himself and family on his full-time job as the owner of a heavy machinery business. “When I bought the land for RM10,000 per acre in 1991, my first thought was to plant palm trees. From rough estimates, I would have been able to bring home a clean profit of RM200,000 after five years. That was my initial plan,” said Ho, now 59. http://www.thestar.c…2609_pg26c.ashx Special crop: The plantation has some 200,000 agar trees propagated from 200 seedlings in 1992. A visit from a Japanese secondhand heavy machinery dealer in 1992 changed his mind. “The Japanese dealer and I, we are old friends. During his visit, he introduced a Japanese botanist who revealed he had spent his life cultivating a special crop of agar trees, each containing the genes of a superior lineage from 12 trees. “This botanist wanted someone to propagate his work and he thought I might be a suitable candidate. “But I had to be able to sustain the venture for the first 15 years without income,” recalled Ho. http://www.thestar.c…609_pg26f1.ashx David Ho (l) holds a sapling with wife, Khor Lye Keen. Each costs RM 38. The offer struck a chord with the former student of SM Jelapang, whose favourite subject was Chinese history. The meeting had immediately reminded him of his History teacher, Pan Tau Siew, who had once mentioned the agar tree in one of his lessons. As Ho remembers it, Pan had said it was regarded as divine by emperors as the agar tree was believed to promote longevity. Because it was the norm for emperors to have no less than a few thousand wives, the essence of the agar tree was also sought for its aphrodisiac qualities. “So, I said yes,” Ho said. The 15-year wait not withstanding, Ho had his personal reasons. “Everyone then was either doing palm oil or rubber. I wanted to be different. Call it my shot at achieving immortality,” he ruminated. Stressing it was not his intention to live forever, Ho instead expressed hope to be remembered as the proponent of the agar wood industry one day, just like Henry Ridley was synonymous with the rubber industry in the Malay peninsula. The deal was not without conditions. “I was not to plant any palm or rubber trees on the land because to do so would contaminate the land with pesticides and fertiliser. The botanist was insistent that the agar trees must grow in a fully organic environment as the produce was to be used in medicine,” says Ho, who now holds a 70% share in Gaharu Tea Valley with the rest going to the Japanese. http://www.thestar.c…2609_pg26f.ashx A sample of how infected agar wood looks like. Harvesting the resin (ref to cylinder at top) for incense and resin So, he sat behind the steering controls of his backhoe to do the terracing, draining and to fashion a dam to catch the cascading waters from the mountains. He spent some RM5mil to do the concrete works and played the role of a single parent to the 200 seedlings that later grew into 200,000 trees, giving an estimate yield of some 100,000 seeds a year. The second condition was everything had to be sold back to Japan. The Japanese had big plans for the produce. It is a known fact that agar wood will be worth more when they are infected by a fungus which will trigger the defence secretion of the much sought-after black resin used in perfumes and incense. To do this, workers have to manually drill holes into the bark, following a diamond-shaped pattern. http://www.thestar.c…2609_pg26d.ashx A clean room worker shows off a tray of dried tea leaves at the RM 10 million factory in the plantation. Wooden chopsticks, dipped into a special enzyme made according to a secret recipe provided by his Japanese partner, are then hammered into the holes. Some 15 workers are required for every acre to perform this procedure and provide pre- and post-drilling care. Plans were also made to tap the full commercial potential of the agar tree. Its leaves will be used for tea and herbal soup formulations, plus a miracle beauty powder. Its wood will be for crafts and furniture. The original plan was to realise all this in Japan where a factory had already been set up. Then, disaster struck. In 2011, Japan was hit by what was recorded as the fifth most powerful earthquake in world history. In the ensuing chaos, the factory designated to receive the fruits of Ho’s labour was reportedly swallowed by the earth. http://www.thestar.c…2609_pg26b.ashx To induce the tree to produce the much sought after agar resin for perfumes, holes are manually drilled into the bark. “It was devastating news,” said Ho, who added that the Japanese botanist was unhurt. Immediately, it was decided that operations should move to Gopeng, Perak, where a RM10mil factory with 30 staff was set up. The recipes to harvest the bounty of the agar wood trees were also entrusted to Ho. Today, the primary product of the factory is agar tree leaf tea which is exported to China, Hong Kong, the US, Canada, the Middle East and Indonesia. A rough estimate of 20 tonnes of tea has been exported to these countries. “Currently, the usage rate of the agar trees in the plantation is only 0.1% as the majority of utilisation is focused on only the leaves. Daily, about 1,000kg of agar tree leaves are harvested. After drying, the factory is left with only 300kg for processing. These are then included in formulas for biscuits, soup sachets and even instant noodles, which sees sales of 100 packets per day at RM3.50 per unit,” says Ho. But what of the black resin, which is regarded as black gold to perfumers? “The current price for this black resin is RM2,000 per kilogramme but I will have to wait five or six years to obtain a good yield from the treated trees. Of course, the longer the wait, the better,” said Ho, who has a 21-year-old infected tree in the plantation, a must-hug feature for visitors. While he waits to harvest the black gold, Ho’s focus is to concentrate on promoting the goodness of the agar tree. One active way is in educating visitors of its huge potential. There is a lookout point where they can catch a breathtaking view of the entire plantation of agar trees and rest stops for hikers where passion fruit plants provide shade as they watch workers go about marking boundaries to indicate the kind of follow-up care required. At present, the visitors’ centre is the main sales arm for agar tree products and Ho has become a celebrity of sorts. Taking position as right hand man in this long-term venture is his son, Nicklaus, 34, a University Nottingham graduate who promotes his father’s dream at agricultural expositions. Continue reading
September’s Red-Hot Emerging Markets
By Nicholas A. Vardy, CFA With Ben Bernanke’s putting “tapering” on hold, the green light for a traditional fourth-quarter rally in emerging markets is on. Recall that the mere threat of tapering on May 22 had put emerging markets into a tailspin. The stock markets of formerly red-hot BRICs — Brazil, Russia, India and China — fell off a cliff, as sentiment soured on these economic powerhouses. Political unrest in Egypt, Turkey and Syria sent global investors scurrying for the safety and security of developed markets, the U.S. and Japan in particular. That all changed on Aug. 27 when emerging markets bottomed. The MSCI Emerging Markets Index has rallied 14.59% since then, and among the 40 global stock markets I monitor on a daily basis, 13 are up by double digits in September alone. That’s a huge turnaround — but not an unexpected one. I’d be hard pressed to recall many other episodes of such massive underperformance of emerging markets compared with the U.S. Following such a sharp rally, emerging markets are certainly overbought on a short-term basis. But with the Fed putting tapering on the back burner for now, I’m looking for a big fourth quarter in emerging markets. And in a liquidity-driven market, September’s top emerging-market performers are a good place to start. 1. iShares MSCI Thailand Capped ETF : +21.29% The iShares MSCI Thailand Capped ETF THD -2.36% has been one of the top-performing emerging-market exchange-traded funds (ETFs) of the past few years, soaring 39.98% in 2012 alone. But during this past summer’s drubbing of emerging markets, Thailand was hit harder than most. Between May 22 — the day the Fed announced the prospect of tapering — and hitting a its low on Aug. 27, the Thai ETF tumbled over 28%. But since then, the Thai market has rallied 23.49%. The triple whammy of a slump in the Thailand’s currency, the baht, economic growth screeching to halt, and fears of the Federal Reserve’s tapering plunged Thailand’s stock exchange firmly into a bear market. Indeed, Thailand’s economy hardly is ship-shape. Its economy contracted 0.3% between April and June, following a previous fall of 1.7% during the first quarter of 2013, putting the Thai economy officially into recession. That’s a stark contrast to last year’s strong economic growth of more than 6%. No wonder that even as the market has rallied, Goldman Sachs cut its rating for Thailand from overweight. 2. iShares MSCI Turkey ETF : +20.45% Turkey was the top-performing emerging market of 2012, with the iShares MSCI Turkey ETF TUR -1.36% soaring an eye-popping 65.58%. But the threat of imminent tapering and boisterous anti-government protests caused the Turkish market to plunge almost 32% between May 24 through Aug. 26. Since bottoming, however, the market has rallied 21.47%. The summer’s political protests caught investors off guard. Back in the 1990s, Turkey’s emerging market was a poster child for economic instability. Sure as day follows night, you could always count on Turkey’s stock market to blow up regularly. That all changed with a new pro-business Islamic government installed in 2001. The Turkish economy grew at an Asian Tiger-like average rate of 7.5% between 2002 and 2006, faster than any other OECD country. By 2012, Istanbul boasted an eye-popping 36 billionaires, putting it fifth in the world behind Moscow, New York City, London and Hong Kong. In November 2012, Fitch Ratings upgraded Turkey sovereign debt to “BBB-,” the lowest rung on the investment-grade level — the emerging market’s first investment-grade rating in 18 years. Moody’s followed in May 2103, and the Turkish market hit highs not seen in 25 years. 3. WisdomTree India Earnings : +15.27%. Few former emerging-market darlings have attracted more negative headlines over the past six months than India. One of my favorite contrarian indicators is to look at headlines … and bet the opposite. That strategy would have paid off in spades with India. Britain’s Economist magazine dedicated its Aug. 24 cover story to India’s fall from economic grace. Since bottoming four days later, the Wisdom Tree India Earnings ETF EPI -0.32% has rallied 20.15%. Since May 22, the Indian had market plunged 27.7%, hitting a low on Aug. 28. Political gridlock, a brake on economic reforms, and a plummeting rupee, have made the Indian stock market the worst-performing stock market in the world in 2013, down 17.4%. And that’s after it’s recent sharp rally. The appointment of Raghuram Rajan, a University of Chicago economist and former chief economist of the World Bank , as India’s central-bank chief has lit a fire under the rupee and the Indian stock market. Rajan is introducing reforms to address India’s most glaring weaknesses. But not all of Rajan’s actions bode well for this former emerging market high-flyer. On Friday, Rajan unexpectedly raised a key interest rate in an effort to quell inflation — the first increase since 2011. Disclosure: I hold the iShares MSCI Turkey ETF. Continue reading
How Investors Can Make Money with Clean Tech Energy
Sep 25, 2013 By: The_Energy_Report AEIS GTLS ENOC KIOR SZYM Let’s get one thing straight: Clean tech is much more than solar panels. So if you’re squeamish about the Solyndra bankruptcy, it’s time to do some more homework. Raymond James Energy Analyst Pavel Molchanov is following clean tech companies around the world that help utilities avoid rolling blackouts, connect solar systems to the grid and produce biofuels that don’t compete with food crops. Discover these fascinating stories in this interview with The Energy Report and find out which names Molchanov is recommending for short- and long-term profits—as well as stocks to steer clear of. The Energy Report: A large number of photovoltaic (PV) manufacturing firms went bankrupt during the past year. What is the outlook for solar energy firms? Pavel Molchanov: Most of the solar bankruptcies that took place in the U.S., Europe and China have occurred among companies that manufacture solar modules. But it’s important to note that a bankrupt company does not necessarily shut down production. About 75% of these companies, as measured by production capacity, have continued to operate, either on a stand-alone basis during bankruptcy or following an acquisition by a strategic partner. Take, for example, China’s Suntech Power Holdings (STP:NYSE) . It was the largest solar manufacturer in the world as recently as 2011. It declared bankruptcy in March, and continues to operate and generate revenue. Solyndra, of course, has been wiped off the face of the earth. But such liquidation is a very rare outcome for large solar companies that take temporary refuge in bankruptcy. TER: Are bankrupt, producing solar companies attractive investments? PM: Rule of thumb: Do not invest in a bankrupt company! The broader point is that bankrupt solar companies are continuing to contribute to the overcapacity that plagues parts of the industry. A year ago, the amount of production capacity exceeded demand by a ratio of 2:1. In other words, the industry had twice as much production capacity as there was global demand. Obviously, that is an absolute nightmare. Since 2012, though, overcapacity has been reduced a bit as certain bankrupt firms were liquidated. Meanwhile, demand for solar modules has picked up. My best guesstimate of the overcapacity in the solar industry is about 60%–which is still a challenging situation for any manufacturing industry, but not as bad as it had been. TER: Please explain what you mean by the term “clean tech.” PM: Clean tech is an investment theme that comprises a broad set of industries, including solar, wind, biofuels, natural gas fuels, fuel cells, electric vehicles and smart grid. The overarching theme is production and distribution of energy using technologies that are more environmentally sustainable than conventional methods. TER: What are solar inverters? PM: Inverters transform DC current to AC current and connect a solar system with the grid. Modern inverters are very sophisticated pieces of electrical equipment. The competitive landscape for inverters is much more manageable than for solar panels. TER: What firms are hot in the solar inverter space? PM: Advanced Energy Industries Inc. (AEIS:NGS; AEIS:BSX) is the third biggest inverter company in the world behind SMA Solar Technology AG (S92:Xetra) from Germany and ABB Ltd. (ADR:NYSE) from Switzerland. It is the biggest U.S.-based manufacturer of inverters. On average, inverter gross margins are in the 20–30% range, double the margins for panel manufacturers. TER: Is Advanced Energy a start-up? PM: Advanced Energy has an interesting history. Until about five years ago, it was barely involved in the solar industry. It was primarily a semiconductor capital equipment provider selling to customers such as Applied Materials Inc. (AMAT:NASDAQ). Through acquisitions and organic growth, Advanced Energy has morphed into much more of a solar company; this year more than half of its revenue comes from the sale of solar inverters. TER: What other promising clean tech firms do you follow? PM: EnerNOC Inc. (ENOC:NASDAQ) is a one-of-a-kind company. It provides demand response services to utilities and energy management services to enterprises. About 90% of its revenue comes from utilities and 10% from enterprise customers. For utilities, demand response aims to prevent blackouts in times when power demand exceeds supply. Traditionally, utilities compensated for excess demand by building peak-power plants, which are capital-intensive investments that mostly just sit there and depreciate. By contrast, EnerNOC connects electric utilities with commercial and industrial power consumers, reducing the need to build peak-power plants. It prevents blackouts—most recently in the mid-Atlantic region in September—by carefully controlling and curtailing power consumption, spreading the pain across a broad base. TER: What happens when a utility signs up with EnerNOC? PM: The utility assigns EnerNOC a quota of megawatts that EnerNOC’s sales force needs to fill. Commercial and industrial power users in that utility’s region sign up to enter EnerNOC’s network. When the grid is stressed and demand is at the risk of exceeding supply, the utility automatically signals EnerNOC’s computers. The machines take over and reduce power consumption by the commercial and industrial consumers. In an office building, for example, thermostats will go from 72 degrees to 74 degrees in the summer. Most people will not even feel that increase. Or if there are 10 production lines in a factory, one line might be turned off. It is much more controlled and manageable than rolling blackouts. TER: How does this affect the price of electricity? PM: The utility pays EnerNOC a fee for having the megawatts available, even if the energy is never utilized. In other words, if the utility does not end up needing any of this demand response, then EnerNOC gets paid anyway. And, best of all, when there are demand response events, and EnerNOC is called upon to activate its network, it is paid extra. About half of EnerNOC’s revenue is transferred to the commercial and industrial power users as their compensation for simply being in the network. TER: Are EnerNOC’s financial fundamentals sound? PM: One reason that I like EnerNOC as a stock is it has a high free-cash-flow yield, not just by clean tech standards, but by anyone’s standards. This year, we estimate that EnerNOC’s free cash flow yield will exceed 12%. Next year, it could exceed 16%. These are very high numbers. Because its business model is based on recurring revenue, there is a certain similarity between EnerNOC and the software-as-service platform, which is justifiably popular among investors. TER: Are you following any natural gas companies involved in exporting liquefied natural gas (LNG)? PM: Exporting LNG—whether from North America or Australia or Qatar—is an interesting theme, but it is not part of clean tech. What does fall in the clean tech category is the production of liquefied and compressed natural gas for powering fleets of trucks and buses. There are several companies that participate in this market. They are not all buys, but I am very positive on Chart Industries Inc. (GTLS:NGS; GTLS:BSX) . Among other things, it makes the equipment that is installed at fuel stations to convert natural gas into LNG for trucking transport. Chart Industries is a diversified business. It has leverage to many other types of gas consumption, not just LNG. It is a profitable company with positive free cash flow. And it has nice leverage to various international markets, especially China, not just North America. I watch some other companies in the natural gas transportation theme. Clean Energy Fuels Corp. (CLNE:NASDAQ) is a fuel distributor for both compressed natural gas and LNG, but the stock is overvalued right now. If investors are looking for a good trade, I suggest go long Chart Industries and short Clean Energy Fuels. Both companies are connected to the same theme—but one is very well positioned, and the other not so much. A Canadian company with leverage to this theme is Westport Innovations Inc. (WPT:TSX; WPRT:NASDAQ) . It makes engines for natural gas vehicles. It is an interesting company with a differentiated technology, but it is also a very expensive stock and not worth chasing at current levels. I am neutral on Westport for the time being. TER: What about clean tech consumer products? PM: There are some public companies that use renewable feedstocks, especially sugar cane, to produce materials that can be turned into cosmetics or nutrition products. Solazyme, Inc. (SZYM:NASDAQ) uses an algae technology platform. It is going into commercial production in the U.S. and Brazil to make oils that can be turned into nutrition and cosmetics products. In the long run, I anticipate that Solazyme will focus more on chemicals and fuels—but for now, it has good traction in the consumer arena. TER: Are clean tech industries as a whole responsive to political crises like the oil and gas industry is? PM: One of the nice things about clean tech companies is that they do not have to worry about wars in the Middle East. They do not have to worry about nationalizations. They do not have to worry about oil spills: You cannot spill solar power or wind power. You could spill some ethanol, but that would hardly be the end of the world. Political risk for these companies does exist, but that is related to governments suddenly changing policies that support the adoption and deployment of renewable energy. For example, in Europe, solar subsidies have been cut, and that has slowed down solar installations in Europe. Conversely, in China, the solar market went gangbusters this year because the government is pushing very aggressively for it. In the U.S., renewable fuels have historically been politically popular in Washington on a bipartisan basis. The Renewable Fuels Standard, a set of regulations developed by the Environmental Protection Agency, requires the industry to use increasing amounts of biofuels through 2022. Meeting the standards will require increased production of advanced biofuels and cellulosic biofuels, both of which are early-stage industries. Corn ethanol has lately caused some political controversy, but the newer kinds of biofuels have not. Advanced biofuels can be manufactured from different types of biomass, including sugars, vegetable oils and corn, whereas cellulosic biofuels are made from non-food materials. That means no sugar cane or soybean oil resources are used—nothing that would compete with food production. Cellulosic fuels are based upon switchgrass, miscanthus, wood chips or municipal solid waste, all of which have the advantage of lower input costs. We also like a company called KiOR, Inc. (KIOR:NASDAQ) , which is the only public pure play on cellulosic biofuels. It makes gasoline and diesel, not ethanol, from wood chips. KiOR’s first commercial plant, in Mississippi, began producing earlier this year and is currently in the process of ramping up. TER: Any final thoughts to share with investors? PM: Political leaders the world over have almost unanimously concluded that cleaner, lower-carbon, renewable energy should be supported by governments. Europe has historically led the way in solar and wind adoption. Biofuels are much more prevalent in the U.S. and Brazil. China is now becoming a major driver of demand for renewable energy. In markets that some people may not normally associate with renewable energy, such as Thailand, South Africa and Chile, the clean tech sectors are starting to get traction at the political level. All that is encouraging for clean tech investment in the long run. It’s worth keeping in mind that some of these companies are earlier-stage businesses that are a ways off from profitability, so the risk profile of clean tech tends to be on the high side. TER: Thanks for your time, Pavel. PM: Cheers, Peter. Pavel Molchanov joined Raymond James & Associates in June 2003 and has worked as part of the exploration and production research team since that time. He also initiated coverage on the alternative energy sector in fall 2006. Molchanov became an analyst in January 2006. He graduated ***** laude from Duke University in 2003 with a Bachelor of Science degree in economics with high distinction. Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page. DISCLOSURE: 1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None. 2) The following companies mentioned in the interview are sponsors of The Energy Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. 3) Pavel Molchanov: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Chart Industries Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. 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