IOI seen making operating profit of RM1.2bil

PETALING JAYA: Moody’s Investors Service expects IOI Corp Bhd to report an operating profit of over RM1.2bil over the next 12 to 18 months based on its crude palm oil (CPO) price assumption of RM2,300 per tonne.

The rating agency said on Thursday that stronger sustainability standards would not result in an immediate increase in IOI’s earnings, “but they limit the risk of reputation damage and loss of customers arising from further sustainability complaints”.

Moody’s said amid growing awareness and demand for sustainable production, it expects companies such as IOI, which have Roundtable for Sustainable Palm Oil (RSPO) certification, to be better positioned to benefit from the favourable long-term outlook for palm oil demand.

On Oct 22, IOI Corp (Baa2 stable) announced that the RSPO’s Complaints Panel had officially closed a complaint case against its palm oil plantation subsidiary in Ketapang, Indonesia.

RSPO is an association of palm oil industry stakeholders which promotes the growth and use of sustainable oil palm products.

Moody’s said the case closure was credit-positive for IOI because it reflects industry stakeholders’ recognition of IOI’s continued commitment to sustainable palm oil production.

“The closure also removes the risk of further sanctions as a result of the initial complaint, which if unchecked could lead to weaker earnings resulting from a loss of customers,” it said.

To recap, a complaint by environmental organisation Aid-environment criticising IOI’s clearing of peatlands in Ketapang resulted in IOI being suspended by RSPO between April and August 2016.

RSPO lifted the suspension on certifying IOI’s production after the company took remedial action to address the concerns. However, the complaint case remained open amid IOI’s implemention of its action plan and third-party verification on progress.

Since this incident, IOI has introduced a sustainable palm oil policy which outlined its commitment to a number of practices, including no deforestation, no peat development and no development of high conservation value areas.

IOI has also taken a number of steps to improve sustainability practices, including obtaining third-party verification on its progress towards implementing sustainable policies.

These steps were acknowledged by Greenpeace, an environmental activist organisation, in 2017.

“The increasing scrutiny from stakeholders including customers and investors on environmental, social and governance (ESG) issues has prompted palm oil producers to adopt and strictly implement sustainable practices that allow for strong monitoring and mitigation of negative ESG impacts,” said Moody’s.