Federal Int'l: Turns On 1st Power Project

Federal International's move to diversify into the energy sector has been
powered on. Its 60%-owned JV, Banyan Utilities (BU), has just signed a contract
with ASX-listed Natural Fuel's Singapore subsidiary (NFS) for a BOT (Build-
Operate-Transfer) energy plant to supply both electricity and steam. The plant,
which will cost BU around S$20m and generate around 5.5 megawatts of
electricity, will bring in revenue worth a minimum of S$54m for a period of 12
years starting in Dec 2007, with an extension option of 5+5 years. The reason
for Federal to plug into the energy sector is to secure more recurring income
and the NFS project will bring in at least S$2.7m revenue per annum for the
next 12 years. Despite the diversification, Federal has not neglected its
mainstay trading business. It has been expanding its geographical reach and
we understand it has been making good progress in the Middle East and
Vietnam. And with all four engines all ramping up, Federal is in a good shape
to achieve its S$1b sales target within the next five years. We do not have a
rating on the stock.

Energy sector push switched on. Federal International's move to diversify
into the energy sector has been powered on. Its 60%-owned JV, Banyan Utilities
(BU), has just signed a contract with ASX-listed Natural Fuel's Singapore
subsidiary (NFS) for a BOT (Build-Operate-Transfer) bio-diesel energy plant
to supply both electricity and steam. The plant, which will cost BU around S$20m
and generate around 5.5 megawatts of electricity, will bring in revenue worth a
minimum of S$54m over 12 years starting in Dec 2007, with an extension
option of 5+5 years. BU is also in the process of obtaining a wholesale license
to sell any surplus output from its Co-Generation facility to third parties.
Another plant in the works. We understand that BU is in discussions with
NFS to build a second Co-Gen plant to support the latter's Jurong Island facility
and this could happen over the next 3 - 5 years. In total, BU plans to generate
some 25 megawatts of electricity so that it could participate in the wholesale
market. BU believes it could potentially achieve S$300m in revenue over a 12-
year period. In addition BU, as a CDM (Clean Development Mechanism)
developer, hopes to generate some 10,000 tons of Carbon Credits, which in
turn could potentially be sold and generate additional revenue to the group. BU
has taken steps to qualify the project(s) under the scheme. Over the longer
term, BU intends to diversify into district cooling plants and water desalination
plants.
Bigger recurring income base. The reason for Federal to plug into the energy
sector is to secure more recurring income. The initial NFS project will provide
BU with an attributable revenue of at least S$2.7m per annum for 12 years,
and if BU can achieve its S$300m target, the recurring stream could swell to
S$15m per year. This will add positively to the other recurring revenue of at
least US$15m per annum from the lease of its FSO vessel and its Indonesian
oil & gas BOT project.
Energized growth prospects. Despite the diversification, Federal has not
neglected its mainstay trading business. It has been expanding its geographical
reach and we understand it has been making good progress in the Middle
East and Vietnam. And with all four engines all ramping up, Federal is in a
good shape to achieve its S$1b sales target within the next five years. We do
not have a rating on the stock. (