IOI confirms suspension of RSPO certification for the entire group’s palm oil production effective 1 April 2016 in respect of complaints against its Indonesian subsidiaries’ plantation estates, which produced approximately 2% of the group’s annual CPO production.

To address the complaint that IOI has not adhered to the required time frame, procedures and the RSPO principles and criteria, IOI announced a series of steps to be taken in an action plan, including preparation of a legal register; conducting stakeholder engagement with all relevant governmental departments and ministries; compilation of standard operating procedures and checklists; and conducting internal capacity building. (Source: Bursa Malaysia)

Comments: The faster the suspension is lifted the better for the group. As stated in the announcement, there will be impact on the group if it is not able to supply certified palm oil in the future due to prolonged suspension and these potential sales losses are not quantifiable. Major consumers, especially in the developed countries, increasingly have a preference for certified sustainable palm oil and hence certification is important.

Our rating for IOI remains at SELL with a TP of RM4.24.

Source: Affin Hwang Capital Research - 30 Mar 2016