IOI faces uphill battle to win back lost customers after lifting of RSPO suspension

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KUALA LUMPUR (Aug 5): IOI Corp Bhd shares ended higher today on news that the suspension of its certification by the Roundtable on Sustainable Palm Oil (RSPO) has been lifted.

The stock gained 22 sen or 5.2% to close at RM4.45, with 16.85 million shares traded, making it the fifth top gainer on Bursa Malaysia. Its market capitalisation stood at RM27.98 billion.

While the market hailed the news, analysts said it's still early days for the palm oil producer to regain its customers such as Unilever, Colgate-Palmolive, Hershey's, Johnson & Johnson, Kellogg, Mars, Nestle, Procter & Gamble, Reckitt Benckiser, SC Johnson and Yum! Brands which had stopped buying palm oil from IOI following the suspension.

The suspension, which went into effect on April 4, had lead to some of its key customers sourcing palm oil from other RSPO-certified suppliers such as Kuala Lumpur Kepong Bhd.

“This (lifting of the suspension) is definitely positive for IOI. The suspension has affected its downstream operations,” CIMB Research regional head of plantations and deputy head of Malaysia research Ivy Ng Lee Fang told theedgemarkets.com today.

Kenanga Investment Bank Bhd plantation analyst Voon Yee Ping concurred. However, she said the positive effects from the lifting may take some time to be felt by IOI.

“It may take some time for IOI to get its orders back. A lot of its major customers, especially multinational companies, (which had cancelled their contracts with IOI) may take a while to return,” she said.

“This may take months,” she added.

Voon sees the four-month suspension impacting IOI's earnings in the financial year ended June 30, 2016 (FY16). “4QFY16 will definitely be affected, and maybe a little for 1QFY17.”

In a statement today, the RSPO Secretariat said its Board of Governors has endorsed the recommendation made by the complaints panel to lift the suspension of RSPO certification for the entire IOI Group effective Aug 8.

IOI, one of the founding members of the RSPO, had announced in late March that its RSPO certification for its entire oil palm production would be suspended from April, following complaints of violation of RSPO criteria by non-governmental organisations against the plantation estates of IOI's Indonesian subsidiaries.

The announcement came after sustainability consultants Aidenvironment submitted a formal complaint to RSPO in that same month, alleging deforestation in IOI concessions in Ketapang, among others.

Prior to the update today from the RSPO Secretariat, IOI Group and Aidenvironment had, in a joint statement dated July 28, said there had been significant progress made in resolving the Ketapang complaint case.

They also agreed on several main actions, including the immediate removal of all 'overplanted' oil palms by IOI Group, and that the company will have in place legally required fire prevention and mitigation measures and commence the implementation of an integrated peat.

IOI Corp's share price, which has been sliding since end-March to touch a low of RM4.12 on May 16, has shown signs of recovery since last month.