KUALA LUMPUR (Aug 5): IOI Corp Bhd has been hitting the pedal on share buybacks as the oil palm plantation company’s share price descended to its lowest in over a year while investors weighed the Malaysian plantation industry’s prospects against Covid-19 pandemic-driven movement restrictions and global commodity prices.

According to IOI Corp’s latest share buyback filing with Bursa Malaysia on Tuesday (Aug 3), IOI Corp bought another 600,000 shares in the open market at prices between RM3.65 and RM3.67 for a total of RM2.19 million.

Following the purchase of the 600,000 shares, IOI Corp's cumulative number of net outstanding treasury shares stood at  51.4 million while its adjusted number of issued shares stood at 6.29 billion.

The adjusted number of issued shares at 6.29 billion gives IOI Corp a market value of about RM23.27 billion based on IOI Corp’s closing share price today at RM3.70.

IOI Corp’s share price closed up five sen or 1.37% at its intraday high at RM3.70 after erasing losses from its intraday low of RM3.62.

RM3.62 marked the lowest that IOI Corp’s share price had descended to in about 17 months since March 24, 2020 when the stock closed at RM3.66.

IOI Corp has been actively buying back its shares in the open market since February 2021 and its cumulative number of net outstanding treasury shares had more than doubled since then, its Bursa filings show.

According to a Feb 2, 2021 filing, IOI Corp’s cumulative number of net outstanding treasury shares stood at 19.68 million then after the company bought back 800,000 shares for RM3.41 million.

IOI Corp said it paid between RM4.21 and RM4.25 for the shares.

For now, it is unclear what IOI Corp plans to do with its over 50 million treasury shares.

At the time of writing today, IOI Corp had not responded to theedgemarkets.com’s queries about the rationale behind its active share buyback and how it intends to use its treasury shares.

In corporate terminology, a share buyback is synonymous with the notion that a company’s shares are undervalued, hence a share buyback is seen as a way to support a company’s share price.

A company can either cancel its treasury shares, resell them on the open market for a profit or distribute the securities as share dividend to reward shareholders.

A glance at IOI Corp’s share price chart since the beginning of 2021 shows that its share price had fallen to current levels from its closing price at RM4.43 on Jan 4, 2021.

Hong Leong Investment Bank Bhd (HLIB) analyst Chye Wen Fei wrote in a Malaysian plantation sector note today that HLIB maintained its "neutral" call for the local industry as near-term share price sentiment on plantation companies will likely remain weak on the back of lingering environmental, social and governance (ESG) concerns.

Chye, however, did not specify in the note what the ESG concerns are for the local plantation sector.

The analyst said HLIB's top picks in the Malaysian plantation sector are IOI Corp, Kuala Lumpur Kepong Bhd and TSH Resources Bhd.

Chye said HLIB has a buy call for IOI Corp shares with a target price (TP) of RM4.67 as HLIB also weighs the impact of the possible emergence of the La Nina climate pattern on the Malaysian oil palm sector and prices of rival crop soybean.

"Several weather forecasters recently indicated that the odds of La Niña forming by end-3Q/early-4Q are increasing. Assuming La Niña sets in during late 3Q/early-4Q, it will likely disrupt palm oil production as harvesting and logistics of palm oil will be disrupted by heavier-than-usual rainfall.

"Impact on soybean production, on the other hand, differs among key producing countries due to different planting schedules. Impact of La Niña is more evident on key vegetable oil prices, particularly soybean and CPO (crude palm oil) prices.

"We maintain our CPO price assumptions of RM3,200/mt (for 2021) and RM2,800/mt (for 2022-23) for now, pending more convincing data that supports the potential La Niña episode,” Chye said.

Meanwhile, CGS-CIMB Securities Sdn Bhd analysts Ivy Ng Lee Fang and Nagulan Ravi wrote in a note today that CGS-CIMB, which has a hold call and RM3.97 TP for IOI Corp shares, believes the impact of workers shortage on Malaysian oil palm production is becoming more visible as the industry contends with the impact of pandemic-driven movement restrictions.

"Our estimate of a 5.5% m-o-m drop in CPO output to 1.5m tonnes in Jul 2021F is diverging from historical trends of a 9% m-o-m rise in July output over the past 10 years and is also lower than the past 10-year average CPO output of 1.71m tonnes for the month of July.

"Our survey revealed that East Malaysia estates posted the sharpest m-o-m production declines in July. We are of the view that the widening gap between historical production against estimated achievement for the July month reflects the severe shortage of foreign workers facing the Malaysian planters, ageing trees due to slow replanting, slower new planting rates, restricted movement issues affecting some estates and mills due to rising Covid-19 cases and lower fertiliser input due to logistics issues,” they said.