Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM3.75/share. Our fair value for IOI is based on a FY24F PE of 18x, which is the 5-year mean for big cap planters. We ascribe a 3-star ESG rating to IOI.

• We visited IOI’s Gomali oil palm estate, palm oil mill, biogas plant and wood panel factory in Johor last week. Here are the key takeaways: -

• IOI’s ESG targets are to achieve a 40% reduction in GHG emissions intensity by 2025F against 2015 baseline and to be carbon neutral in terms of Scope 1 and 2 by 2030F. IOI plans to achieve net zero emissions in terms of Scope 1, 2 and 3 by 2040F.

• Some of the environmental initiatives that IOI has implemented include the Nestle Releaf, Bukit Leelau mini landscape and South Ketapang Landscape projects. Nestle Releaf is a tree planting project to increase forest coverage and carbon sequestration. Under the Bukit Leelau mini landscape project, IOI worked with the natives to maintain the water table at peat areas.

• IOI has also set up IOI Mesra, which is a 24/7 grievance app and implemented an independent workers’ engagement programme with &Wider. &Wider, which is an independent workers’ engagement expert will help monitor working conditions and workers’ well-being.

• Incidentally, we gather that rainfall is sufficient at IOI’s oil palm estates in Johor. The group does not face a significant shortage in labour anymore and as such, FFB production is expected to be healthy in 2H2023. IOI has also implemented mechanisation at the estates such as using the electrical mechanical cart and mini tractor grabber to collect fruits.

• The wood panel factory is expected to start operations in July 2023. The factory would be using oil palm trunks to produce wood panel products. Customers are envisaged to be door and furniture manufacturers.

• The capacity of the wood panel factory is about 80,000 cu m per year. In the initial years of operations, IOI Palm Wood would be selling its products to local customers. When the operations have stabilised, the group wouldthen venture overseas. We do not expect IOI Palm Wood to contribute significantly to IOI’s FY24F-FY25F net profits as the operation is small compared to the group’s palm and oleochemical businesses.

• IOI is currently trading at a FY24F PE of 18x, slightly lower than its 2-year average of 19x.

Source: AmInvest Research - 6 Jun 2023