IOI Corporation Bhd
Market Perform. Target price: RM3.80
NEXTGREEN IOI Pulp Sdn Bhd (NIP), a 55:45 JV between NGGB and IOI, has roped in a partner for its RM600 million wood-free, EFB-based pulp and paper plant in Green Technology Park, Pekan, with an annual production capacity of 100,000 MT. It has entered into a 25:75 JV with Xiamen C&D Pulp & Paper Group Co Ltd, the pulp and paper unit of Xiamen C&D Corp (XCD). This new JV will co-invest in the EFB pulp and paper project and XCD will off take the empty fruit bunches (EFB) based pulp and paper products.
Listed in the Shanghai Stock Exchange with a market capital of RMB32 billion (RM20 billion), XCD is primarily a provider of supply chain and logistical services for various commodities and goods, from iron/steel, chemicals and agriculture produce to automotive, textiles, consumer products as well as pulp and paper. Its pulp and paper unit handled 13 million MT in 2022. Beyond arranging the shipping, customs, warehousing and logistics needed, the pulp and paper unit also operates a digital exchange for upstream and downstream players to buy and sell online. XCD’s clients include dairy giant Frontera, industrial gas giant Linde and Indonesia’s Asia Pulp & Paper.
XCD and NIP (i.e. NGGS and IOI) will also work together to develop the business further and help raise external funds for the project.
With IOI’s initial 45% equity in the RM600 million project now diluted to 33.75%, the impact on IOI will be even more negligible, from funding to the project’s eventual after-tax contribution impact in the medium term. Strategically, IOI is investing in an ESG-positive project which needs some industrial, financial and market access to scale up.
We maintain our forecasts, TP of RM3.80 and MARKET PERFORM call.