IOI CORP BHD

By PublicInvest Research Neutral (maintained) Target price: RM4.65

AFTER meeting the representatives of IOI Corp Bhd, PublicInvest Research reiterated its “neutral” call on the plantation group, with a slightly higher target price of RM4.65.

The research house indicated that IOI Corp’s earnings for its upstream and downstream segments are expected to improve moving forward. This was on the back of steady palm oil prices.

“We had a chat with representatives of IOI Corp last week and came away with some positive developments in the company, most important of which would be its plans to expand its plantation land bank after completing the disposal of the specialty oils and fats business to Bunge by the end of next year.

“After being quiet in the upstream plantation segment over the last couple of years, the management plans to expand its land bank in Malaysia with a target of 60,000 ha and below. It favours brown field areas mainly located in peninsular Malaysia and Sabah,” said the research unit.

IOI Corp, the second largest plantation player in Malaysia, projects to achieve 8% fresh fruit bunches (FFB) production growth in FY18, banking on improved FFB production yield.

It has 149,714 ha of mature plantation area and about 14% of its total plantation area still immature. Close to 91% of its total plantation area is located in Malaysia.

The improved FFB yield is also anticipated to lower cost of production of crude palm oil in FY18 to RM1,450 per tonne from RM1,500 per tonne a year earlier.

Going forward, PublicInvest Research said the capital expenditure allocation of RM400mil to RM450mil will be maintained despite the deconsolidation of specialty oils and fats segment.

“About 60% of its FY18 capex is for new planting activities of 4,000 ha in Indonesia while the remaining 40% would be the normal upgrades for its downstream segment.

“Besides that, it also plans to replant up to 9,000 ha in Indonesia,” it said.