Market

What’s the market like? How much revenue could they make, and when?

The palm oil market is forecasted to have a $30b market growth (30m more tonnes) in the next 7 years. Palm oil has several applications, each with its own needs that an alternative oil might address and solve:

• Frying oil: McCain uses soybean oil in the US, but doesn’t know how to do it in Asia - larger volumes, difficult to source.

• Cosmetics: higher margin, faster traction. No regulation: just self-certification. In the EU there’s a dossier that companies self-submit, but no formal approval - quite similar to the US.

• Food regulation: in the European market, it takes 2-3 years to get novel food accreditation. In the US 18 months. Singapore and Israel offer the quickest route to market, under 6 months.

Sun Bear will adopt a licensing model. Manufacturing with in-house bioreactors would be too CAPEX intensive. Deals with large food companies will enable these customers to produce the palm oil alternative themselves.

The company aims to achieve billion-dollar scale revenue across the 3 offerings of food, cosmetics, biofuel and then new products.

Who are the competitors or incumbents? How do we know they can beat them all?

Their comparison point, at the moment, is the synthetic palm oil used by the cosmetic industry: 7/8x more than normal palm oil. Other oils to compare: coconut oil is 3/5x more expensive. These oils don’t have the same properties, so they have to add supplements to get the same profile as palm oil (in terms of smoking point, state at room temperature, etc.).

In terms of competition:

• Some key competitors, across different types of biomanufactured oils, are C16, Xylome, NO Palm Ingredients, Clean Food Group, Colipi. These companies use gene editing technology on bacteria (~50%), adopt wild strains (~20%), or extract oil from other products (~30%).

• Other companies in the space: Noblegen, Corbion, Farmsow, Circe, Kern Tec, Bite Back, Epogee, Green-on, Nourish Ingredients, Zero Acre Farms.

Although some of these startups are further along in their development and are well-capitalized, they have not reached the validation required for mass production. Technical hurdles not yet fully addressed make the competitive landscape relatively even. New players that can execute fast and iterate on their product have the opportunity to outdo companies already on the market. Two other key points:

• ML is key to accelerating strain optimisation. Competitors often rely on external services. Ben Williams will lead the optimisation in-house.

• The one competitor with the closest process to Sun Bear employs a slower and more expensive fermentation process.

Do the unit economics make sense? Can they last?

80% cost is determined by the feedstock. For now, their oil costs [undisclosed]$/T. This price must be brought down. As mentioned above, Sun Bear can develop a product potentially 20% cheaper than palm oil, or up to 50% more expensive. It all depends on how much sugar and how much alternative feedstock they will be able to use.

If the company can achieve price parity with palm oil, the business will have healthy unit economics and a viable growth strategy. In our opinion, Sun Bear’s price benchmark should not be that of alternative oil companies, but palm oil as a commodity. A price match on that level could represent a real change in how palm oil-based supply chains work worldwide.