News

Datuk Lee Yeow Chor was appointed as chief executive officer of IOI Corp Bhd (IOIC). During the briefing, Datuk Lee shed some lights on IOIC’s (which will become a pure integrated palm oil player upon the completion of demerger) future direction.

To grow plantation landbank further. IOIC currently has a total landbank of 206k ha, of which 176k ha has already been planted with oil palm, and the remaining 30k ha in Indonesia will be planted over the next 3-4 years. New planting aside, IOIC is also in the lookout for more plantation landbank in Malaysia, Indonesia and other countries (such as Papua New Guinea). Expanding its own plantation landbank aside, IOIC will also continue to support Bumitama (a 31.3%-owned associate) in its expansion in Indonesia, which will have new planting of 13-15k ha/annum.

Sees prospects in specialty fats sub-segment. IOIC sees good prospects for high value downstream products, in particularly the specialty fats sub-segment, on the back of the increasingly affluent ASEAN countries and limited players in the market. To boost its presence in the specialty fats sub-segment, IOIC is constructing: (1) A fatty ester plant (which caters for food, cosmetic and pharmaceutical industries); and (2) A direct manufacturing facility in Xiamen, China for specialty fats products.

Higher dividends payout? Post demerger, IOIC is expected to have a strong annual operating cash flow of RM1.1-1.4bn. Management hinted that it has the capacity to maintain its dividend and dividend payout above 50%.

Capex for FY14 is guided at RM410m, of which RM236m would be spent on the upstream segment, and the remainder spent on the manufacturing segment.

Risks

Downside risks – (1) Demand rationing by certain major oil consuming countries, when CPO price escalates; (2) Lowerthan- expected output at the upstream plantation segment; and (3) Escalating CPO production cost.

Forecasts

Maintained.

Rating

HOLD


Positives – (1) Improved demand outlook for CPO; (2) Decent balance sheet; and (3) Strong cash flow generation ability.

Negatives – Pricey valuations.

Valuation

SOP-derived TP maintained at RM4.53. Maintain Hold recommendation on the stock.

Source:Hong Leong Investment Bank Research - 9 Jan 2014