IOI Corp Bhd
(Sept 11, RM4.00)
Maintain hold with target price (TP) of RM4.02: IOI Corp Bhd announced that an indirect-wholly-owned subsidiary had on Sept 9 entered into a conditional asset purchase agreement to acquire the entire oleochemicals business of Cremer Oleo GmbH & Co KG in Germany for €89.4 million (RM436.35 million) cash. Cremer’s oleochemical production facilities in Germany are located in Witten  and Wittenberge, with a combined processing capacity of approximately 39,200 tonnes per annum. 

The proposed asset purchase, expected to be completed in the first quarter of 2016 will enable the IOI Group to move further up the value chain, extending its offerings in more specialised downstream oleochemical products with an established customer base comprising a number of multinational and large European companies. 

The proposed purchase is not expected to have a material effect on the group’s earnings in financial year ending June 30, 2016 (FY16) but will be long-term positive. In FY15, the underlying profit before tax (PBT) (excluding net foreign currency translation loss) of IOI Corp’s resource-based manufacturing business declined 30% year-on-year (y-o-y) due to lower margin from the oleochemical and refinery sub-segments and lower sales of refined products. 

The net book value of the assets was €90.3 million. 

Pending management guidance in our next meeting, we maintain our FY16 to FY18 forecasts, TP (based on 18 times calendarised 2016 earnings per share) and “hold” rating. Key upside factors include a stronger-than-expected recovery in the global economy or extreme weather boosting vegetable and crude oil prices, lower-than-expected soybean and palm oil production; and favourable changes in biodiesel policies and export tax rates. Key downside risks include further weakness in demand and lower crude oil prices. — Affin Hwang Capital, Sept 11

This article first appeared in digitaledge Daily, on September 14, 2015.