IOI Corp Bhd
(Jan 5, RM4.72)
Maintain “neutral” with a target price of RM4.58: We recently came away from a meeting with IOI Corp Bhd’s management with a more positive guidance for financial year 2015 (FY15). Though crude palm oil (CPO) prices remain at a low level, the management targets to maintain its earnings for FY15.

Despite a slowdown in demand and the low level of CPO prices, the management is planning to plant 6,000ha in Indonesia and replant about 8,000ha in Malaysia (about 5% of Malaysian planted area). By end-FY15, there will be about 8,000ha coming into maturity in Indonesia. Total planted area in Indonesia will stand at 21,000ha while unplanted area will be about 20,000ha, which will last for the next three to four years.

The group is also looking at 8% fresh fruit bunches production, which is close to our forecast of 6.9%. The age profile is about 12.5 years old (Malaysia: 13 years old, Indonesia: less than four years old). 

On the cost of production, the management aims to maintain its cost of production of (ex mill) RM1,200 per tonne, though the spending on fertiliser costs could be slightly higher due to the stronger US dollar.

Though there is an additional 30% refining capacity coming on stream from Indonesia next year, management opines that it would not be significantly affected as the majority of its refining capacity is for its own oleochemical manufacturing and specialty oils and fats segments.

The first mill, which is located in Central Kalimantan is ready for commissioning. It has a capacity of 60 tonnes per hour and can scale up to 90 tonnes per hour in the future. The management plans to increase its capital expenditure from RM156 million in FY14 to RM380 million in FY15.

About RM180 million will be used for new planting while the remainder would go downstream as it plans to build a 100,000-tonne specialty fat plant in Xiamen, China. As unplanted land bank is getting limited, the management has been actively scouting for brownfield sites, especially in Kalimantan.

The management also indicated that IOI Corp will likely be out from the syariah-compliant list in the next review. However, it will make a comeback by the 2015 review. — Public Investment Bank Bhd, Jan 5.

This article first appeared in The Edge Financial Daily, on January 6, 2015.