Exciting year ahead for corporate Malaysia

Tan Sri Lee Shing Cheng

TAN SRI LEE SHIN CHENG

Executive Chairman

IOI Corp Bhd

YOUR views on the escalating risks in the plantation sector’s crucial growth parameters such as the scope of expanding oil palm areas, control of harvesting costs and maintaining high yields?

The most challenging factor for growth would be finding suitable land to cultivate. First, land prices have escalated. Second, not all agronomically-plantable land is suitable in today’s context.

We are all concerned about the environment and the impact businesses have on the environment. We need to ensure that business is conducted under sustainable business models. In the case of palm oil, the cultivation of oil palm should be in accordance with sustainability principles and criteria as prescribed by Roundtable of Sustainable Palm Oil, of which IOI is a founding member.

Among other things, this means for instance, that virgin forest or areas with “high conservation value” or peat areas more than 2m deep, should not be touched.

On the cost front, the most serious area of cost increases is fertilisers. Five years ago, we used to spend about RM800 per hectare per annum on fertilisers. Today, the amount has almost doubled and it's still going up. Fortunately, the strengthening ringgit has mitigated the increase.

As for maintaining high yields, we hope to not only maintain but to further improve as well. Oil yields per hectare can be further improved both in terms of FFB yield as well as extraction rates at the mills.

How do you foresee the 2008 growth outlook for biofuel/biodiesel industry in Malaysia amid the international trade limitations, higher feedstock (CPO) prices, sustainability and the food versus fuel debate?

The growth of the biofuel/biodiesel industry is mainly driven by Europe and the US. For these regions, the main consideration is energy security and therefore, governments are backing the development of the bio-energy sector either in the form of subsidies or mandated use.

There are clear targets in these countries and hence the growth trend is expected to continue. Besides, for the developed countries, food prices is not such a big issue. For poorer nations in Asia and Africa, escalating food prices is a serious concern.

In Malaysia, cooking oil is a price-controlled item and the bigger producers are required to contribute to a cooking oil cess. Hence, since we even have to subsidise cooking oil, we will not be ready for the biodiesel industry to take off in Malaysia as yet.

Globally, the amount of palm oil that is used for bio-energy is very low (less than 5%). Palm oil will continue to face obstacles as a feedstock for bio-energy in places like Europe.

However, despite all these, we see palm oil demand and palm oil prices going up. This is because as more rapeseed oil, soy oil and corn gets diverted to the bio-energy sector, more palm oil is needed to fill up the shortfall in the food and other sectors.

I see the food versus fuel debate continuing. Unfortunately, the world is hungry for both food and fuel. But as I said, actually, very little of palm oil goes to fuel at the moment.

Do you agree that the structural changes in the global commodities supply and demand pattern i.e. the biodiesel market, the fight for hectarage to plant corn for ethanol instead of soy bean and rapeseed in the US and South America, trans-fatty acid concerns, China and India relaxing their palm oil import tariffs, will lend support to higher CPO prices in 2008?

Prices of soft commodities in general are expected to remain high. In the case of vegetable oil, supply over the next 12 months, with the notable exception of palm oil, is expected to lag behind consumption again.

Hence, prices of soy oil, rapeseed oil and sunflower oil will remain high and will even go higher if projected production is cut by unfavourable weather.

Palm oil production growth, on the other hand, will be above average but this is not a bearish sign because its surplus supply is needed to make up for the deficits in the other oil.

Overall, for 2008, palm oil prices will follow the lead of other vegetable oil which prices are expected to be high.

Your company’s strategies in 2008 and the rationale behind it, i.e. overseas expansion, refineries, mills, biomass, biodiesel projects or carbon credit initiatives.

We are bullish about the long-term prospects of palm oil and will continue to invest at the appropriate time and in an appropriate manner to grow the business, both upstream and downstream.

We recently entered into a joint venture (JV) to invest in oil palm cultivation in Indonesia. Our effective interest in the JV is equivalent to about 70,000ha, which is nearly 50% increase to current planted hectarage in Malaysia. It is, therefore, a very significant addition and this will likely be the main area of focus in 2008 for the upstream sector.

We will also further invest in downstream operations in Malaysia as well as Europe and the US over the next two years to capture demand, further value add and innovate on the use of our palm oil fractions.

Also, not forgetting that we have a sizeable property business that should also see decent growth as the market is improving.

The current volatile CPO prices from RM2,900 to RM3,000 per ton have made it very difficult for planters to lock in their CPO selling prices. At what price would your company be “comfortable” with for FY2008 and FY2009? Kindly indicate your average cost of production annually.

We are “comfortable” with the current price levels but will not be aggressive on forward sales, as there are upside risks. Our production cost is about RM550 per tonne. However, cost of sales, after factoring in transport costs, Sabah sales tax and cooking oil cess, is about RM950 per tonne.

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IOI building muscle to become Stronger and Bigger

Although it wasn’t published officially the people around the palm oil industry knew what awaken the plantation sector. It used to be one of the most boring sectors and the related stocks’ movement could out you to sleep. It started with the Super-Merger that saw the merger of Kumpulan Guthrie Berhad, Sime Darby Berhad and Golden Hope Plantations Berhad creating the biggest listed palm oil producer in the world in terms of output and market value under a new company called Synergy Drive. As expected the branding of Sime Darby was too valuable to be put to sleep and the temporary Synergy Drive was renamed Sime Darby Berhad (SIME: stock-code 4197) again.

In actual fact the Super-Merger involved 9 (nine) listed companies and somehow StockTube believed the shareholders were under-offered. Almost simultaneously, other palm oil players were awaken and sensing that they could be eaten up alive (not that it have not happen before), the boring chess game begun its interesting movement. Less than a month after the mega-merger, IOI Corp Berhad (KLSE: IOICORP, stock-code 1961) acquired Pan Century Group, operator of an edible oils refinery for RM423 million from one of India’s conglomerates, the Aditya Birla Group. The acquisition by IOI Corp created the the world’s biggest vegetable oil-based fatty acid producer in the world.

Then the Kuok Group, controlled by tycoon and richest man in Malaysia, Tan Sri Robert Kuok, undertook a mammoth S$6.6 billion (RM15.18 billion) corporate exercise to merge several of its companies in Malaysia and Singapore - Wilmar International Ltd (SIN: F34) and PPB Oil Palms Bhd (KLSE: PPB, stock-code 4065). It was then Kuala Lumpur Kepong Berhad’s (KLSE: KLK, stock-code 2445) turn when it announced the acquisition of Swiss-based Dr W Kolb Holdings AG, a specialty oleochemical holdings company, for 135 million Swiss francs (RM393.39 million).
Amongst all the players, the most aggressive would be IOI Corp Berhad. Taking the second seat in terms of market capitalization behind Sime Darby Berhad is not a situation to be taken with complacency. In terms of landbank IOI Corp’s figure stands at 320,000 ha (after the 152,504ha of palm oil plantation in Kalimantan from Indonesia's Harita Group) while Sime Darby is comfortably at 543,626ha of landbank. And IOI Corp’s executive chairman Tan Sri Lee Shin Cheng has no plan of stopping at the current level.

Yesterday, it was reported that IOI shareholders approved a planned US$600 million (RM2 billion) issue of bonds exchangeable to new shares. "We actually have enough funds for expansion and upgrading of manufacturing facilities. The money from this bond issue is mainly for acquisitions." IOI executive chairman Tan Sri Lee Shin Cheng said after shareholders meeting in Putrajaya.

While Lee said the company was looking at either Malaysia or the region for future acquisitions and it’s not to “compete” with Sime Darby, you just got to take that with a pinch of salt. He knew too well how the corporate scenes in Malaysia are being played. Furthermore to be known as the most efficient producer in squeezing six tonnes of crude palm oil per hectare in a year, Tan Sri Lee Shin Cheng is no ordinary man you could squeeze easily. In addition there is still some RM300 million left unspent in IOI's planned capital expenditure for the current year ending June 2008. Add that to the latest RM2 billion war-chests from the bonds issued and you can guarantee of more interesting acquisition(s) from IOI Corp.

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IOI Corp plans second US plant

PUTRAJAYA: IOI Corporation Bhd plans to set up a second plant in the East Coast of the US to expand its existing businesses there, apart from its Chicago plant as part of its expansion drive.

“We are in the middle of negotiating to purchase the land. Geographically, it has to be in the right position, as logistics costs are concerns to us,” said its group executive director Datuk Lee Yeow Chor.

Presently, IOI Corp has a plant in Chicago to produce fats for food ingredients manufacturers with a capacity of 200,000 tonnes annually.

With the second plant being planned, Lee said it would increase the total capacity in the US to 400,000 tonnes annually.

He said IOI Corp was eyeing the East Coast to set up the new plant because it has the second highest concentration of food ingredient manufacturers, after Chicago.

However, he added that the group would also target to expand their operations in the West Coast in the future.

On IOI Corp operations, Lee said the group was on an acquisition trail, with an appetite for more lands for its plantation and property development divisions, as well as stakes in other companies, other than expanding its plants both locally and overseas, as part of its strategy for group expansion.

The group, which had recently acquired several Indonesia-based palm oil plantation companies for RM289 million, was raising funds to finance its acquisition activities, via the issuance of convertible bonds. IOI Corp had issued two convertible bonds previously, raising a total of US$720 million (RM2.38 billion).

Speaking to reporters after the company’s EGM here yesterday, its group executive chairman Tan Sri Datuk Lee Shin Cheng said: “Continuous acquisition is one of our agendas. I am interested in everything, as far as business is concerned.”

At the company EGM, shareholders approved the up to US$600 million convertible bonds issue by its wholly owned subsidiary IOI Resources (L) Bhd. Lee said: “We raise funds not only for expansion, but also for acquisition. We are looking at buying more land here or in other countries.”

However, IOI Corp had not targeted to make any acquisitions yet, he said, adding that the funds raised from the bonds issuance would be on a standby mode, in the event any acquisitions cropped up.

Meanwhile, Lee dismissed reports that IOI Corp was acquiring a substantial stake in Unico-Desa Plantations Bhd as rumours, and said he had not received any propositions from the latter regarding the stake sale.

He said: “I have not received any offers, but if the opportunity arises and the offer is reasonable, I will consider it.”

It was reported in October that IOI Corp was seeking its board’s approval to buy a substantial stake in Unico-Desa, as part of its plan to grow its plantation business. Lee added that the group also did not intend to privatise its property development arm IOI Properties Bhd for the moment, contrary to analysts’ reports.

The group was also finalising plans to expand its operations in Johor, which would concentrate on creating value-added products.

Lee Shin Cheng said: “Currently, we have three businesses in Pasir Gudang — refinery, specialty fats and oleochemical — and we want to make use of our unique position to create a synergy between these businesses, to come up with value-added products.”

He added that the group expected its profitability to be enhanced by the second half of fiscal year 2009, following the completion of its acquisition of plantation lands in Indonesia.

On the possibility of the government revoking licences among companies that did not use them to produce biofuel, Lee Shin Cheng said it would not affect IOI Corp’s businesses.

He added that the group had not embarked on producing biodiesel, as it was not profitable, due to high crude palm oil (CPO) prices. “It is still difficult to convert CPO into biodiesel because of the high prices, and it might even increase again next year,” he said.

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Voices '08: I believe in Malaysia, says Tony

What do Malaysians think about Malaysia? What are the experiences that shape our feelings for the country? Over the next few weeks, we will hear from different Malaysians as they share with us their thoughts and ideas about Malaysia in this series called Voices. Not coincidentally, this is also the theme for the NST’s year-end pullout. ABDUL RAZAK AHMAD gets the ball rolling by talking to Datuk Tony Fernandes who is doing everything he can to sell Brand Malaysia to Malaysians and the rest of the world.

Q: What has the year been like?

A: It’s been a phenomenal year. Our profits have been great, we won airline of the year (Airline Of The Year 2007 award by the Centre for Asia Pacific Aviation), the first time a Malaysian company has done that, beating Emirates, Singapore Airlines and others. I suppose getting the Singapore-Kuala Lumpur routes represents a feather in our cap. We also launched AirAsia X, and it’s great to be in partnership with (Sir) Richard Branson, who is an icon himself.

One accomplishment I’m really proud of is that wherever I go we’re always referred to as Malaysia AirAsia, or Malaysia’s AirAsia. If I walk around in KL people know me but in London, very few do. But that number is growing, and that shows that our brand is becoming more significant.

Q: What are the major lessons?

A: Maybe, patience. It has its virtue sometimes, but we are a company in a rush. Malaysia Airlines is celebrating its 60th year, and we are only celebrating our sixth year, but we’re still proud to see what we’ve been able to achieve. It shows what Malaysia and Malaysians can do if we put our minds to it.

Q: What were the low points? And how did you overcome them?

A: I’m disappointed that another uneven surface has been opened, that Firefly can operate from Subang and we can’t. I pray for the day that we can have a level playing field with Malaysia Airlines. I feel that we could do many more things together, and I feel that as Malaysian companies, competition is good and we should compete, and the real competition is out there. And we should do more together.

Q: You often lament about an uneven playing field between your private company and the government-linked MAS. Is this a problem in general for other private companies in the country?

A: Sometimes the problem of a private company versus a GLC is we just don’t get the airtime the GLC gets with the political leadership. There’s no one to blame for this. I have confidence in the government but it is frustrating. I think we could be twice the size we are now.

Q: You have travelled widely, lived and worked abroad, yet you chose to come back to Malaysia. Why?

A: I came back, and I’m a big advocate (of returning). When I went to a UKEC (United Kingdom and Eire Council for Malaysian Students) programme and gave speeches at universities in England, I advocated that people should come home.

One, it’s home. I don’t care what anyone says. There is only one home. Anywhere else is adopted. And no one can take that from me. I have a blue IC and a red passport. And I’m proud of it, even though I can live anywhere in the world, and most places would welcome me.

Two, I’m very nationalistic. From a young age, my mother used to be so pro-Singapore Airlines and anti-MAS, and now, funny how life has changed - I always argue with her about MAS being the best. In the last Olympics I watched every single Malaysian perform. If I support the All Blacks in rugby, or the West Indies or India in cricket, it’s not my country.

Third, I was born here; I received a good education because my parents did well in Malaysia, and so I felt it was my responsibility to come back. It’s not perfect, Malaysia. But where is perfect?

I’m the sort of person who doesn’t believe in just sitting back and complaining. Come back and make a difference. Now especially, more and more have this perception that, oh, there must be someone behind Tony Fernandes. I’ve heard so many different names. The most famous being Ananda Krishnan, Tan Sri Azman Hashim, (Tan Sri) Vincent Tan, (Datuk) Mokhzani Mahathir, Khairy Jamaluddin, I mean you name it. But we are the best advertisement that anything is possible in Malaysia.

Q: Was there any point in the early years when you returned that you felt you should have stayed away?

A: No, never. I’ve always loved this place and our people. We’re unique. James Ingram (American soul musician) — I brought him down when I was in Warner Music — once said to me the American government should visit here. Because he couldn’t get over how all the races here get together, the intermarriage, the people going out together. Yeah, we have our racial problems, but we generally get on with each other.

I know I’ve persuaded many people to come back. I know that I have been involved in bringing many who migrated abroad to come back. And I don’t think for one minute they have regretted it.

Q: Who are your Malaysian heroes, the people who inspire you?

A: There are so many. I always talk about “Mr IOI” (Tan Sri Lee Shin Cheng, founder of the IOI Group). I love his story of how he started, selling ice cream on a bicycle, and now he’s owner of one of the biggest oleo-chemical companies. And you know what I love about him? I went to one of his estates, and I noticed his passion. He’s obviously now a very, very rich guy, but he still enjoys going out there and showing me seeds. I mean, to me, a seed is just a seed, but his passion! So that guy really stands out for me.

Tan Sri Naza (Tan Sri S.M. Nasimuddin S.M. Amin, Naza Group chairman and chief executive officer) is another guy I really like. He never ages and is always pushing to be the best, and Tan Sri G. Gnanalingam (Westports Malaysia Sdn Bhd chairman), too. He started in one industry, got a chance in another. All of them seized their chances.

And look at what Nazir Razak (Datuk Mohamed Nazir Razak, group chief executive, CIMB) has done. Yeah, he was born with a silver spoon. He’s my friend. He wasn’t my friend three years ago — I thought he was arrogant. I didn’t give CIMB our IPO. But I’m proud of what he’s done and to be associated with him now. He’s gone out there and put CIMB on the map of banking in the world. He goes out there and he brands. I mean, come on, CIMB is now a household name.

Q: What’s the common trait of the people who inspire you?

A: Most of them managed to come up from nowhere and just do something. They are people whom, given a chance, will do much more, and who succeed despite adversity. I love it, I love seeing it.

Q: Every now and then, something happens that unites all Malaysians and there is an overwhelming “proud to be Malaysian feeling". Recent examples are usually sports-related, like when Nicol David became the World No 1 in women’s squash. Do you think we as Malaysians have lost that feeling?

A: Do I think Malaysians feel this less? No, but I think Malaysians need icons. When Zainal Abidin and Sheila Majid gained success as music artistes, and even Siti Nurhaliza, they’re about the only artistes able to ignite that Malaysian pride. You’ll see all the races supporting them, able to transcend their differences.

So we do want a Malaysian “brand". I’m proud of being part of it. We don’t sell it enough — this Bangsa Malaysia we talk about. I hope for the next generation, well, it’s my dream anyway, that we don’t put ourselves down as Chinese, Indian, Malay, but as Malaysian. And I hope there’s a Barisan Nasional that I can join. I think our “brand” is our biggest selling point, because there’s no country in Asia quite like us.

Q: How do you think we can get the youth of Malaysia to be proud of our country?

A: What I tell them is, one, I say, look at AirAsia. We were just three guys from the music industry with not a lot of money, no experience, no political connections — zero. Datuk Pahamin Rajab was the only guy with connections, and with due respect to him, he’s not the person with the strongest political connections around, though he is respected.

But we’ve been able to build an airline and compete with Malaysia Airlines and have slowly been able to close the uneven playing field. No one has an answer to explain that away! So who says you can’t do anything?

Where else in Asean can this (AirAsia) happen? In the aviation industry, nowhere. Singapore hasn’t managed to do it. And in Singapore it’s a function of the government. Tiger Air is owned by Temasek and Singapore Airlines.

So no one can give me an answer and say Malaysia is not fair. No one can say that no one gets equal opportunities. I did. I am living proof that we can. That’s what I tell the students, like those in the UK. I said you live in a wonderful country, don’t believe what you hear, it’s up to you, because Malaysians are their own worst enemy.

But I don’t think anyone in any country would have been able to achieve what we have, and it’s because of our government, and it’s because of the fairly level playing field. Of course, I want it completely level, who wouldn’t? But in six years, we’ve achieved a lot, and we owe a lot of it to the government.

Q: What’s your wish for 2008 — for AirAsia, and also your hopes as a Malaysian?

A: I hope the country can spur more private investors. I hope there can be more encouragement given, and that it’s not rhetoric. I hope more investment can be put in education, much more emphasis on education.

You asked is it just sports that bring us together. No. It can be music, movies, and companies. When we have something to be proud about, that brings us together. So what’s lacking in education? More emphasis on sports and the arts.

From the sports field, you get your first eradication of colour. No one can say “pass the ball to him — he’s an Indian winger, or a Chinese or Malay". It’s from there you first learn teamwork and working together.

Now, we’re just memorising 15,000 books to get 15As. How sad it is to see a girl committing suicide because she didn’t get it. Education is not about getting 15As, which I didn’t come close to getting.

Education is also about sports, interaction, about learning how to work as a team, about leadership. And we do not put enough emphasis on sports.

You can put all the money into FAM, but where did the Soh Chin Auns and Arumugams and all those guys come from? Schools, and playing football in the padang. Where are the padang nowadays?

Two, is art, drama and music. That’s where you gain a sharing of culture and breaking down the invisible barriers.

Q: Do you face problems getting people with the right qualities when you recruit?

A: Yeah, I do. We’re not getting enough people who can think out of the box. Because you don’t have creativity in schools anymore. Like in art and drama, which is where you learn to express yourself. So, getting enough creative thinkers is a problem.

Q: On occasion though we do see bits and pieces of a Malaysia united and able to transcend ethnic barriers.

A: It’s coming, it was there, we lost it, and now I think the government’s aim is to promote it. I don’t believe that anyone is marginalised. I believe that ultimately we marginalise ourselves.

Malaysians are their own worst enemies. They just sit there and say, “No, it can’t be done,” even before they try. My philosophy is, try and, if you fail, try again. Because I don’t want to reach 55 and say “I should have done this". But my dream for the future is my belief — I really believe in Malaysia as a Malaysian.

Take the AirAsia Academy. It’s a microcosm of what I’d like to see in Malaysian schools. I don’t think any pilot training academy is like ours. We have lots of social functions, we get the crew and pilots and engineers to do concert productions, we involve ourselves in sports.

Why do I do that? Because I have a bigger problem than just Malaysia. I have Thailand, Philippines and Indonesia. And they all have different cultures and they all want to do their own thing.

I bring them all to the academy, I don’t care if you’re from Cambodia or whatever, you train in one place. It’s in that one place that we mould one culture.

Q: Would you please share with us what you think is a quintessential Malaysian experience?

A: Two things come to mind. One is food. If you want to see one thing that unifies our country it’s food. Whether it’s a mamak stall or Malay stall, everyone knows everything about all our good food regardless of race.

The other quintessential experience I find peculiar to our country is how we criticise our sportsmen.

Whether you’re Indian, Chinese, Malay, Punjabi, when you sit in the audience at Bukit Jalil and our team is playing badly, the insults are all the same!

That’s the other thing I love about Malaysia. We always know how to do it better!

But anyone can try to argue with me about Malaysia not being a great place and I’d tear them apart. I really would, because I believe in Malaysia.

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Top 20 GLCs’ market cap up RM121b from 2004

PUTRAJAYA: The country’s top 20 government-linked companies’ (GLCs) market capitalisation had risen by more than 83% or RM121 billion as of Nov 30 since the introduction of a comprehensive transformation plan in 2004 with strong emphasis on achievement of key performance indicators (KPI).

“During the same period, total shareholder returns of the top 20 GLCs recorded 24.4% compound annual growth rate (CAGR) outperforming the Kuala Lumpur Composite Index (KLCI) by 3.3%,” said Prime Minister Datuk Seri Abdullah Ahmad Badawi in his speech at the Forbes Asia Fabulous 50 and Businessman of the Year Award ceremony here yesterday.

Abdullah (left) with Forbes executive editor and Forbes Asia Tim Ferguson at the Q&A session.

“I am particularly proud of our efforts in transforming GLCs. We introduced KPIs, strengthened corporate governance and instituted many other wide-ranging reforms. Where needed, we brought in new leadership which helped to infuse new energy and new ideas,” he said.

Abdullah said the seeds for excellence had been sown, with the likes of CIMB Investment Bank, which is set to become a regional giant while Malaysia Airlines had made a “dramatic comeback” with ambition to become a five-star airline. Abdullah also cited Sime Darby Bhd as another conglomerate set to embark on a journey of becoming a global giant.

IOI Corp chairman Tan Sri Lee Shin Cheng receiving the Forbes Asia Fabulous 50 award from International Trade and Industries Minister Datuk Seri Rafidah Aziz in Putrajaya.

At the ceremony, Minister of International Trade and Industries Datuk Seri Rafidah Aziz presented the awards to the winners of the third annual Forbes Asia Fabulous 50 list, in which IOI Corporation Bhd emerged as the only Malaysian company in the list.

IOI Corp chairman Tan Sri Lee Shin Cheng received the award from Rafidah. IOI Corp recorded its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007, buoyed by record earnings from the palm oil and property business segments.

India’s ICICI Bank managing director and chief executive officer KV Kamath claimed the honour of being the Businessman of the Year.

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IOI denies considering Unico stake

KUALA LUMPUR: Plantation giant IOI Corp Bhd has denied claims that it is considering purchasing a controlling stake in Unico-Desa Plantations Bhd.

Chairman Tan Sri Lee Shin Cheng said reports that IOI had shown interest in buying the stake were false.

“We have not made any offer to purchase (the stake). We have not had any expressions of interest, nothing,” he told a press conference yesterday.

Tan Sri Lee Shin Cheng

“However, if Unico made an official offer to sell its stake (in Unico-Desa), then we will consider. Otherwise, we are not interested,” he added.

Unico Holdings Bhd, Unico-Desa's parent company, had at its AGM in September passed a mandate to undertake a capital-reduction exercise and distribute 29.3% of Unico-Desa's shares to its shareholders.

The mandate did not sit well with ousted director Tan Kai Hee, who publicly voiced his opinion via several Chinese newspapers.

Associated Chinese Chambers of Commerce and Industry of Malaysia president Tan Sri William Cheng, playing the role of mediator, stepped in and met with the Unico group's board members and Tan to resolve the issue.

Cheng had proposed a solution – sell off a total 57% stake in Unico-Desa en bloc (as opposed to the 29.3%), which would fetch a better premium.

When news of Cheng's proposal (to sell a 57% stake) hit the market, speculations were rampant on a potential takeover, with IOI headlining the rumour list. So strong were the speculations that Unico-Desa's stock soared.

Late last week, Unico group's board of directors held a press conference to announce that it had initiated defamation proceedings against Tan and also to set the record straight about the takeover, at least on Unico's part.

Unico group chairman Tan Sri Lim Guan Teik had then confirmed the group was going ahead with the mandate approved at its AGM and that it would carry on with the capital-reduction exercise.

He also confirmed that the group never received any offer to purchase the (controlling) stake in Unico-Desa either from IOI or anyone else, but said that the group would consider the option (to sell) if it received a “good offer.”

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Strong palm oil prices to boost Malaysia’s IOI

By Umesh Desai

HONG KONG, Nov 22 (Reuters) - Malaysian oil palm planter IOI Corp’s move to cut capital and plan to issue bonds has raised alarm bells at rating agencies but analysts say solid cash flows and strong oils prices will bolster its credit profile.

Standard & Poor’s Ratings Services and Moody’s Investors Services have both warned they may cut the ratings on Malaysia’s second-most valuable firm after it revealed a plan to sell $600 million of exchangeable bonds to fund expansion.

The decision to raise funds came after an exercise earlier this year in which the firm used about 1.3 billion ringgit ($387 million) of its cash reserves to cancel one in 20 shares.

“The large capital distribution and the proposed exchangeable bonds issuance will weaken IOI’s financial profile by reducing its buffer against down-cycles,” said Moody’s analyst Peter Choy.

Standard & Poor’s said the company’s financial profile could weaken because rising inflation in key markets may soften demand conditions and put pressure on palm oil prices.

But market analysts say the uptick in crude palm oil prices, up more than 49 percent this year, should continue and the bond offering is unlikely to dent its balance sheet because of strong cash flows.

“We think the price upcycle will extend for another year because supply from Indonesia will not be as large as expected as the severe drought of last year will have a prolonged effect,” said Alvin Tai, analyst with OSK Investment Bank.

Benchmark crude palm oil futures are currently just 1 percent off a record high of 3,013 ringgit a tonne reached two weeks ago.

NEW BOND OFFER

Last week, the company said it plans to issue up to $600 million in 5-year bonds exchangeable into new IOI shares to fund capital expenditure and acquisition opportunities.

The news sparked the warning from rating agencies, which hit the firm’s debt and shares.

Its 2015 bonds widened by 40 basis points (bps) to 190/150 bps over 10-year U.S. Treasuries and its 5-year CDS moved out by 20 bps to 60/65 bps. It’s shares are down 7 percent.

But analysts say the concerns that are reflected in the asset price declines are misplaced.

“IOI is a cash cow because of the rising CPO prices,” said James Ratnam, senior research analyst with TA Securities.

He expects IOI to generate 2.7 billion ringgit in cash flow this year, enough to fund its operations and expansion programme.

He said that cash was increasingly becoming important in this sector which is seeing a wave of acquisitions.

The nature of the firm’s acquisition plans means that cash flows would not be impacted after the capital expenditure, OSK’s Tai said.

“They are looking to acquire ready planted assets — in other words those which are giving immediate cash flows,” he said.

CPO is increasingly taking direction from the red-hot energy markets due to its use as a feedstock for biofuel and IOI’s Lee Yeow Chor, group executive director, has predicted prices will hover between 2,800 and 3,100 ringgit per tonne in 2008, straddling current levels.

And although Moody’s expects prices to peak soon, analysts say the company’s diversification provided a cushion.

Dilip Parameswaran, credit analyst with Calyon Corporate & Investment Bank, said IOI’s downstream units would help offset weakness in CPO prices.

“If palm oil prices fall it is negative for the plantation business, but good for the downstream business — there is a natural hedge,” he said.

He expects the bonds to outperform and the cost of debt insurance to fall because of IOI’s solid fundamentals.

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IOI Corp valuations stretched

19 November 2007

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IOI Corp’s valuations are stretched, trading at 25 times mid-FY09 price-to-earnings (PER) ratio, and fundamental investors with long-term investment horizons should consider unwinding their positions, says Aseambankers Equity Research.

It suggested investors switch to better-valued mid-cap stocks like Asiatic Development Bhd and Tradewinds Plantation Bhd. It added that crude palm oil (CPO) prices would ultimately revert to its mean value, which should be more sustainable at RM2,200 to RM2,400 per tonne over the next two to three years.

“Nevertheless, we acknowledge that IOI could remain a favourite among other investors for trading purposes given its liquidity and proxy to further short term CPO price upward trends.

“We maintain our Fully Valued call on IOI Corp but raise our target price to RM5.80 based on 20 times FY09 EPS (earnings per share) to reflect our earnings adjustment,” it said.

Commenting on IOI Corp’s first quarter (1Q) net profit, Aseambankers Research said the RM452 million was 77% above its and consensus expectations as 1Q is usually a weaker quarter.

All businesses recorded on-year improvements in 1QFY08 as revenue and operating profit jumped to RM3.1 billion (up 64% on-year; up 23% on-quarter) and RM651 million (up 91% on-year; up 1.7% on-quarter) respectively.

Overall margins improved to 21% from 18%, mainly on higher average CPO selling prices of RM2,473 tonnes (versus RM1,483 per tonne in 1QFY07) despite flattish on-year fresh fruit bunches production growth.

Plantations contributed 61% of IOI’s earnings before interest and tax (EBIT) at RM398 million (up 136% on-year; up 54% on-month). Meanwhile, EBIT contribution from the resource-based manufacturing division continues to show improvement with contributions from newly acquired Pan Century and its refinery in Rotterdam.

“IOI is on track set to a net profit record this financial year amidst lofty palm oil prices. We understand half of IOI’s FY08 production has been locked in at RM2,500 tonne,” it said.

“We are raising our FY08-09 net profit forecast by 7.7%-8.4% respectively, factoring higher CPO price assumptions. Maintain Fully Valued with a revised target price of RM5.80 based on 20 times FY09 EPS,” it said.

On IOI’s plans to issue its third five-year exchangeable bonds (EBs) issue for up to US$600 million or RM2 billion in value, the research house said: “We believe this is positive for IOI especially since its conversion price will be referenced at a premium to IOI’s present high share price, which is trading at more than 25 times mid-FY09 PER.”

Aseambankers Research said it was an opportune time for IOI to raise “cheap” fresh capital in view of its ongoing aggressive greenfield projects and its intention to acquire more plantation companies.

It believed these “cheap” funds will help to enhance IOI’s bottom line in the future, on the premise that IOI will not overpay for new assets in view of high asking prices amidst the commodity upcycle.

“The issuance of EBs is expected to have minimal dilution impact on EPS as we anticipate the interest rate to be competitive, at less than 5%. And it will also have little impact on fully diluted EPS on conversion if the EBs are issued at a premium to the present IOI price, which is trading in excess of 25 times mid-FY09 PER,” it said.


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Malaysia's IOI Corp outlook cut to negative on 600 mln usd bond issue - Moody's

16 Nov 2007

MUMBAI (Thomson Financial) - Moody's Investors Services revised the outlook of IOI Corp Berhad's 'A3' foreign currency issuer and bond ratings to negative from stable, after the company said it plans to issue 600 mln usd of exchangeable bonds to fund the expansion of its palm oil downstream operations.'The negative outlook reflects IOI's aggressive debt-funded growth appetite which has raised its financial risk at a time when the palm oil cycle is nearing its peak,' Moody's said, adding that 'the large capital distribution in August 2007 and the proposed exchangeable bonds issuance will weaken IOI's financial profile by reducing its buffer against down-cycles.'

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IOI Corp net profit surges 76.6%

16 November 2007

by Lim Shie-Lynn

KUALA LUMPUR: IOI Corporation Bhd net profit jumped 76% to RM451.52 million for the first quarter (1Q) ended Sept 30, 2007, boosted by record high crude palm oil (CPO) prices and higher sales from properties.

It announced yesterday that revenue rose 64% to RM3.12 billion from RM1.90 billion a year ago, due to better performances for its major business segments. Earnings per share rose to 7.37 sen from 4.22 sen a year earlier.

The earnings, on an annualised basis, at RM1.80 billion was slightly below Reuters’ consensus estimates of RM1.82 billion for the financial year ended June 30, 2008.

IOI Corp expected its business segments to improve in the current financial year and expected its plantation segment to benefit from higher palm oil prices.

It said three of its core business segments — plantations, manufacturing and property — posted higher profits and achieved an overall net earnings of RM451.5 million for its first quarter for the financial year ended June 30, 2008 (1Q08), up 77% from RM255.7 million a year ago.

“Plantations earnings of RM397.5 million for 1Q08 is 134% higher than 1Q07, which was boosted by significantly higher CPO prices as average CPO prices realised for 1Q08 is RM2,473 per tonne as compared to RM1,483 per tonne for the same quarter last year,” it said.

IOI Corp added that its resource-based manufacturing segment reported an increase in operating profit by 33% to RM122.8 million with profits, and volume growth contribution by its wholly owned unit Pan Century Group.

Its property segment’s 1Q08 performance was driven mainly by higher demand for commercial and high-end residential properties with an increase of 37% in operating profits to RM109.7 million from RM80.1 million a year ago.

Meanwhile, IOI Properties Bhd’s first quarter net profit increased 44.3% to RM80.11 million from RM55.53 million, buoyed by higher demand for commercial and high-end residential properties.

The property arm of IOI Corporation Bhd saw its revenue jump to RM205.48 million from RM135.6 million a year ago. Operating profit from property development rose 40.5% to RM89.1 million from RM63.4 million a year earlier.

EPS was 24.64 sen a share from 17.10 sen a year ago.

IOI Corp also announced that it had proposed its unit, IOI Resources (L) Bhd issued up to US$600 million (more than RM2 billion) nominal value five- year unsecured guaranteed third exchangeable bonds.

The bonds, exchangeable into new IOI shares, would be issued and offered outside Malaysia. The gross proceeds would be used to fund capital expenditure, investment/acquisition opportunities, working capital as well as to defray the estimated expenses of the proposed issue.

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Malaysia's IOI Corp Reports 85 PCT Jump in Q1 Pre-Tax Profit

15 Nov 2007

KUALA LUMPUR, Nov 15 Asia Pulse - IOI Corporation Berhad (KLSE:1961) has booked pre-tax profit of RM628.3 million (US$187.5 million) for the first quarter of the 2008 financial year, an increase of 85 per cent from RM338.7 million a year earlier due to better performance of all major business segments.

Group revenue for the three months ended 30 Sept 2007 surged 64 per cent on-year to RM628.251 million as the business segments reported increases in revenue as a result of higher palm oil prices, increased volume for resource-based manufacturing as well as higher sales of properties.

Earnings per share climbed to 7.37 sen from 4.22 sen last year.

In a filing to Bursa Malaysia on Nov 15, IOI Corp said plantation earnings of RM397.5 million was 134 per cent higher than that of last year, boosted by significantly higher crude palm oil (CPO) prices.

Average CPO prices realised for the current quarter was RM2,473 per MT as compared to RM1,483 per MT for the same quarter last year.

The resource-based manufacturing segment reported a 33 per cent increase in operating profit to RM122.8 million with the inclusion of profit from Pan Century Group as well as volume growth.

It said the property segment continued to perform well with a 37 per cent jump in operating profit to RM109.7 million from RM80.1 million previously, driven mainly by higher demand for commercial and high-end residential properties.

Overall, the group achieved net earnings of RM451.5 million for the current quarter, a 77 per cent increase over the RM255.7 million recorded for the previous corresponding quarter.

It said the percentage increase of the group's net earnings level is lower than the percentage increase of the group's pre-tax level due mainly to higher tax expense as a result of the expiry of certain tax incentives granted by the tax authority at the end of FY 2007.

Barring unforeseen circumstances, IOI Corp expects all business segments to further improve in performance for the financial year ending 30 June 2008.

"The plantation segment in particular, is expected to benefit from higher trending palm oil prices," it said

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IOI shoots up from zero base to giant player

16 April 2007

STORIES BY HANIM ADNAN

In the third article of our monthly series on growth of large companies, we focus on IOI, which has evolved from a home-grown plantation player to be one of the world's largest integrated oil palm players.

PLANTATION giant IOI Corp Bhd has had an outstanding achievement as one of the world's largest integrated palm oil producers, with impressive growth in upstream and downstream operations, particularly over the past five years.

The group is reputed to be one of the best-managed and efficient palm oil producers, and IOI is also among the plantation stocks with the largest market capitalisation on Bursa Malaysia.

Starting from zero base, the IOI group's business empire was steadily steered by its executive chairman Tan Sri Lee Shin Cheng through a series of plantation expansion and strategic mergers and acquisitions (M&As) both in Malaysia and overseas.

Tan Sri Lee Shin Cheng (right) and Datuk Lee Yeow Chor

This led to the formation of the group's solid core businesses, namely plantation, oleochemicals, speciality oils and fats, and leisure.

Lee, 67, started out as a field supervisor in the plantation industry. He is one of Malaysia's nine billionaires, who recently made it to the famous Forbes list.

This savvy planter is often seen by his plantation workers talking to oil palm trees in Tamil during his regular visits to the group's sprawling 144,055ha plantations nationwide. He also carries a walking stick to ward off snakes in the plantation site.

Industry observers believe that Lee's acquisition of 27,880ha from Dunlop Estates Bhd in 1990, which included 13 estates, two mills, two factories and a research station, were probably the IOI group's most strategic thrust into oil palm plantations.

Prior to the Dunlop Estate plantations acquisition, Lee was also busy acquiring other smaller pockets of plantations in Peninsular Malaysia and Sabah.

Historically, the beginnings of many present-day plantation companies in Malaysia were seen in the late 19th century and early 20th century. Among the companies, which could trace their roots back to the colonial era are Sime Darby Bhd (established in 1910) and Kumpulan Guthrie Bhd (1821).

Golden Hope Plantations Bhd had its beginnings as Harrisons & Crossfield Plc, which started as a tea and coffee trading company in 1844, and was managing agents for Britain-based domiciled plantation companies from the early 1900s until the transfer of ownership in 1982. Even Kuala Lumpur Kepong Bhd started as a Britain-based domiciled company in 1906.

It was only in 1970s that home-grown companies like IOI Corp, Asiatic Development Bhd, Austral Enterprises Bhd, Hap Seng Consolidated Bhd, PPB Oil Palm Bhd, Tradewinds (M) Bhd and IJM Plantations Sdn Bhd entered the plantation industry scene.

Between 1990 and 2000, it was obvious that the IOI group's focus was on the home front in land bank expansion for oil palm plantations and properties. At the same time, the group continues to dispose of its non-profitable and non-core units.

The group was one of the first township developers which successfully converted its plantation lands nearer to the city to create townships like its flagship Bandar Puteri in Puchong, Selangor.

It was in early 2000 when the IOI group started to prove its mettle as a serious downstream player by making strategic downstream investments in oleochemicals, and speciality oils and fats businesses.

In 2001, it acquired Palmco Holdings Bhd, which was later renamed as IOI Oleochemicals Bhd after a major corporate tussle with Sime Darby Bhd.

To further add value to the group's downstream operations, IOI Corp goes cross-border by acquiring a 100% stake in Loders Croklaan B.V. and its related businesses in the United States, Canada and Egypt from Unilever Group for a total cash consideration of 217mil euros or RM813mil in 2002.

The Loders Croklaan purchase has secured IOI Corp's position as a global integrated palm oil player with an immediate market access overseas.

Lee was quoted as saying: “These acquisitions (Palmco and Loders Croklaan) will enable IOI to evolve with the global market and provide the basis for continued growth to benefit our shareholders.”

He said the acquisitions had subtly but significantly provided the strategic edge for the group's plantation business as well as new applications, new geographical markets and value add for the group's palm oil-based products.

In March last year, the group made another bold decision to take IOI Oleochemical private and de-list it from Bursa Malaysia. It also acquired India-based Aditya Birla's edible oil and oleochemical units in Johor in September, which made IOI the world's largest oleochemicals group.

Given its hefty war chest of RM2.2bil, a market observer said, “it will not be surprising if the IOI group were to go for another round of M&As spree this year.”

“The ultimate question that comes to mind will be whether the group will finally succumb to the lure of investing in oil palm plantations in Indonesia similar to the earlier moves made by local plantation giants like Guthrie, KL Kepong and PPB Oil Palms.

Recently, Lee's son Datuk Lee Yeow Chor said the group planned to be a bigger player, starting with plantations. It plans takeovers in the South-East Asian region, preferably of established oil palm plantations.

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Relocated school to receive first batch of students

2 Nov 2007

Sin Chew Daily reported that SJK (C) Ladang Harcroft, which relocated from Ayer Tawar to Puchong a year ago, will be receiving its first batch of students next year.

The school, which expected to receive about 400 Year One pupils next year, will be opened by Prime Minister Datuk Seri Abdullah Ahmad Badawi on Nov 30, it reported.

In 2004, the MCA had applied to the Government to relocate the school, which was facing closure due to its dwindling student population. The Education Ministry approved the application last year.

Residents in Puchong and nearby areas welcomed the news as they faced difficulty in enrolling their children in Chinese primary schools, the paper reported.

The construction cost is being borne by the IOI group, whose executive chairman Tan Sri Lee Shin Cheng went to check on the work progress on Wednesday.

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Forget about TMT stocks, here come the Replacements

For a very long time, foreign investors were fed with the limited choice of TMT whenever stocks investing are concerned in Malaysia. The abbreviation of TMT means Telekom, Maybank and Tenaga. The best of practice for foreign fund managers then was you must invest in these three heavyweight stocks since they constituted the biggest percentage in terms of Kuala Lumpur Composite Index (KLCI). And when these three musketeers move; the KLCI move. TMT was like the Great Wall of China and you can’t and shouldn’t claim to have been to China if you haven’t visited the Great Wall.

In layman term, it’s quite easy to justify TMT as the leader in the stock exchange. Telekom Malaysia Berhad (KLSE: TM, stock-code 4863) was the biggest and the only player who monopolized the telecommunication sector. Before the emerging of mobile or cell phones, the land-lines were the cash-cow of Telekom. Telekom ruled the land of the nation's telecommunication.

Malayan Banking Berhad (KLSE: MAYBANK, stock-code 1155) being the largest bank with the most number of branches throughout the country is synonym with national bank status of a nation. With limited and near to impossible for other banks to expand their branches, Maybank monopolizes the domestic market. Tenaga Nasional Berhad (KLSE: TENAGA, stock-code 5347) is the only electricity provider and the monopoly is obvious in the energy sector.

The latest report from theStar which picked the source from Bloomberg shows that foreign investors are slowly shifting the decades old choice from TMT to new candidates. The catalyst was indeed the surging prices in palm-oil. IOI Corporation Berhad (KLSE: IOICORP, stock-code 1961) appears to have beaten all the TMT candidates when its market capitalization has ballooned to RM47 billion compared with Maybank’s RM43.2 billion and TNB’s RM40 billion. Public Bank Berhad (KLSE: PBBANK, stock-code 1295) further put the TMT to shame when the company took the fourth place with market capitalization of RM39 billion.

IOI Corp which is headed by its founder Tan Sri Lee Shin Cheng has a weighting of 6.24 percent on the benchmark KLCI should thank global palm-oil prices for the wealth created. On the other hand the Malaysian version of Warren Buffett, Public Bank founder Tan Sri Teh Hong Piow, has shown that good management and the practice of meritocracy in running the banking operation will ultimately win the hearts of investors. Of course his latest expansion to China contributes to the soaring stock price of his baby Public Bank.

So, you’ve seen two examples of great companies run by great leaders. Why the TMT suffered and its performance deterioted over the time in spite of sitting on the throne of monopoly? Remember Malaysian Airline System Berhad (KLSE: MAS, stock-code 3786)? The company that despite the monopoly accorded had made multiple quarters of losses before the bleeding stopped recently. So what are the similiarity with TMT and MAS? All of them are GLC (government-link-companies). All of them have so-called social responsibility to put on gigantic number of employees on its payroll, regardless of the staffs’ productivity and performance. All of them are protected, one way or another by the government. And the moment the profits stop growing or in the red, all of them will scream and cry demanding price hike. . If only doing business and generating profits are so damn simple and easy.

If the other banks are given the liberty of setting up more branches, Maybank would surely disappear from the banking map. Take for example a real case of a customer who reported that his Maybank credit card was used for unauthorized transactions worth hundreds of dollars. Long story short, the customer was asked to pay the “unauthorized transaction” nevertheless because Maybank couldn’t trace the culprit despite numerous appeals. Out of frustration, the customer paid and cancelled all business relationship with the bank.

Now the same situation happened to another customer whereby his credit card was being cloned for various transactions from multiple petrol stations. This time the bank’s (Citibank) system somehow detected abnormal transactions within one of its customers and alerted the respective officers. The customer service called the customer to verify the transaction and advised the customer to destroy and wait for the new credit card to be issued thereafter. The difference is this "lucky" customer was never asked to pay the unauthorized transactions, which is the only right thing to do, not that the customer purposely ask for his card to be cloned in the first place. So you’ve a frustrated and a happy (loyal) customer based on same scenario but from different banking institution.

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IOI Corp is largest KLCI component stock

31 October 2007

Its share price has surged and market cap is at RM47bil

By KATHY FONG

PETALING JAYA: The surge in IOI Corp Bhd's share price has made the plantation group the largest component stock on the KL Composite Index (KLCI) in terms of weighting, topping the usual names Malayan Banking Group Bhd (Maybank), Tenaga Nasional Bhd (TNB) and Telekom Malaysia Bhd (TM).

According to Bloomberg, IOI Corp’s weighting on the benchmark KLCI was 6.24% based on yesterday’s closing of RM7.90, followed by Maybank 5.74% and TNB 5.35%.

IOI Corp’s market capitalisation (cap) has ballooned to RM47bil compared with Maybank’s RM43.2bil and TNB’s RM40bil.

Public Bank Bhd’s weighting on the KLCI was also gaining amid the rise of its share price to a record high of RM11.10 yesterday. The bank was the fourth biggest KLCI component stock with market cap of RM39bil.

Investment analysts said the change on the weighting of the component stocks (in terms of their market cap) indicated the investing interest in Bursa Malaysia.

“The market seems to be getting more efficient now. Companies with good management and earnings prospects are given premium,” said the head of equity research of a foreign investment bank.

“So, TMT may not always be the choice of stocks for investors who want have index exposure now,” he quipped.

TMT, which stands for TM, Maybank and TNB, once regarded the “must have” component stocks for fund managers who needed to benchmark their portfolio performance to the KLCI’s movement.

IOI Corp’s share price has been surging in tandem with rising crude palm oil prices that rose above RM2,900 per tonne.

The stock was seen as one of the most efficient plantation groups in Malaysia due to the hands-on management led by founder Tan Sri Lee Shin Cheng, analysts said.

KL Kepong was also catching up with a weighting of 2.18% as its share price continued to climb.

Sime Darby Bhd, which will be relisted under the name Synergy Drive Bhd next month after the merger with five other companies, was the second biggest plantation counter based on the last traded price of RM11.20 on Oct 17. The conglomerate’s weighting was at 3.75%.

Investment analysts observed that many government-linked companies (GLCs), except for Bumiputra-Commerce Holdings Bhd, were mostly lagging behind the current market rally.

Ironically, the share price of Maybank and TNB had fallen below last year’s closings although the KLCI had been breaking new records this year. TNB slid nearly 15% and Maybank fell 6% year-to-date versus the 29% rise on the KLCI.

The better performer among GLCs was Bumiputra-Commerce with a hefty gain of 44.5% since the beginning of the year.

“The share price performance may be a reflection on how investors think of the GLC revamp,” said an analyst.

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IOI Corp may acquire Unico-Desa stake

30 Oct 2007

KUALA LUMPUR: IOI Corporation Bhd will consider acquiring a stake in Unico-Desa Plantations Bhd, which is embroiled in a dispute over Unico Holdings Bhd¡¦s 29.3% equity interest in the plantation company, as part of its plan to grow its plantation business.

IOI Corp¡¦s group executive chairman Tan Sri Lee Shin Cheng said it would make such consideration should the opportunity arise and any such acquisition would have to be a controlling stake.

Unico board members and its ousted director Tan Kai Hee had engaged in a media war with the latter opposing the company¡¦s plan to undertake a capital reduction exercise, followed by the distribution of Unico-Desa shares to Unico¡¦s 22,000-odd shareholders.

According to a report by Reuters yesterday, IOI Corp is seeking its board¡¦s approval to buy a substantial stake in Unico-Desa.

While not ruling out a move to buy into Unico-Desa, Lee said yesterday that IOI Corp was looking at an acquisition of a plantation company which is bigger than Unico-Desa.

¡§Unico-Desa is a comparably small plantation company. We are looking into something even bigger than this,¡¨ he said, adding that IOI Corp is in talks with several parties on its plan to expand its plantation business and expects to complete at least one acquisition of a private plantation company by end FY08. The acquisition is likely to be a local plantation firm.

Speaking to reporters after his company¡¦s AGM and EGM yesterday, Lee said the acquisitions were part of its two-pronged growth strategy, and IOI Corp would continue to plant from undeveloped land.

To date, he said the group had a total of 155,000ha of planted land bank excluding another 70,000ha that would come in upon the completion of a sales and purchase agreement in Indonesia, which expected in a few days.

He said it expected some immediate contributions from its matured plantations in Indonesia, and this would gradually increase over the next three years.

High crude palm oil (CPO) prices had boosted the group¡¦s net profit in its financial year ended June 30, 2007, and Lee expected sustained growth and profitability in FY08.

Lee said the group had committed to selling CPO at an average price of RM2,500 per tonne in its first half of the financial year ending Dec 31, 2008, from an average selling price of RM1,700 per MT in FY07.

¡§This year was a record, next year will be another record driven by high crude palm oil (CPO) prices, the uptrend in the property market and also our manufacturing ¡X refineries, oleochemicals, specialty fats and oil ¡X are doing extremely well,¡¨ Lee said.

On its property business, he said IOI Corp had at least 10 residential and commercial projects under construction in FY08 with a gross development value (GDV) of RM1 billion including a residential project in Jalan Ampang, Kuala Lumpur.

The group would also begin construction on a residential project on Sentosa Island in Singapore by the beginning of 2008 with a GDV of S$1 billion (RM2.3 billion) he said.

Lee said IOI Corp¡¦s total land bank had a GDV of at least RM5 billion, with between 2,428ha and 2,832ha of undeveloped land bank, excluding those in Singapore. He said the group would continue to explore opportunities in the property sector overseas from time to time.

On the group¡¦s downstream resource-based manufacturing business, he said the group was looking to expand the 800,000 tonne capacity of its refinery in Rotterdam, Netherlands. Currently IOI Corp¡¦s four refineries have a refining capacity of three million tonnes, he said.

The group had also postponed its venture into the bio diesel industry until further study, preferring to focus on its palm oil business which enjoyed robust demand, he added.

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IOI takes top spot on M'sian bourse

Surging crude palm oil prices have propelled its rise

By PAULINE NG
IN KUALA LUMPUR PROPELLED by surging crude palm oil prices and expectations it would surpass last year's record profits, IOI Corporation yesterday leapt to the top spot on the local bourse, pushing Malayan Banking (Maybank), to second position.

Pushing ahead: High prices for crude palm oil, currently around RM2,900 per tonne, have helped IOI make gains of over 50 per cent in the space of three months At yesterday's close of RM7.90 after it gained 40 sen, the plantations giant's market capitalisation of RM47.4 billion (S$20.6 billion) established it as the country's most valuable listed entity. In comparison, Maybank is currently worth about RM43 billion.

IOI Corp's market rise is remarkable, given the top-most positions are nearly always occupied by government-linked entities.

Still, Malaysia's most efficient plantation player is likely to hang on to the top honour for a month - or at least until Synergy Drive comes into being. The government-linked plantations corporation combining three former plantations groups - Sime Darby, Kumpulan Guthrie and Golden Hope - is scheduled to list on Bursa Malaysia's main board at the end of November. Analysts have estimated that Synergy's value upon listing could exceed RM70 billion, which would make it the indisputable exchange leader.

For now the limelight is on IOI Corp, which despite its gains of over 50 per cent in the space of thee months - some half of it in the past month - is still a compelling pull for some.

High prices for crude palm oil - currently around RM2,900 per tonne - have helped, and IOI Corp executive chairman Lee Shin Cheng has indicated that analysts' consensus estimates of a RM1.8 billion net profit for the fiscal year ending in June 2008 will be surpassed.

Last year, IOI's then record profit of nearly RM1.5 billion was achieved at a time of lower prices for crude palm oil, know as CPO. Speaking after the company's annual general meeting on Monday, Mr Lee said CPO prices could well reach RM3,000 per tonne soon.

But stockbroking firms such as Hwang-DBSVickers are more excited about its plans to acquire other plantation companies as potential acquisitions could be 'value accretive' to the stock. Others believe its shares are already fairly valued.

'While sector fundamentals remain positive and we expect CPO prices to stay firm, upside from here looks increasingly less significant, and the impact will also be muted by the expected stronger ringgit,' JP Morgan's Simone Yeoh said in a client note.

Meanwhile, companies such as Unico Desa Plantations are riding on IOI Corp's professed interest in them. Unico is currently embroiled in a shareholder tussle, but its shares jumped 22 sen to RM1.22 after Mr Lee said IOI Corp was contemplating taking over the company if the terms were right.

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Offer to sell 57% in Unico-Desa

30 Oct 2007

PETALING JAYA: Unico-Desa Plantations Bhd's major shareholders have offered to sell a 57% stake in the oil palm plantation group.

Under listing requirements, the disposal would trigger a mandatory general offer for all shares in Unico-Desa should a single party take up the entire chunk of shares.

Consequently, merchant bankers said there was a likelihood of Unico-Desa being taken private in such an event.

The 57% stake are from three parties – Unico Holdings Bhd, Teoh Hock Chai and Dr Yeong Yue Chai. Teoh and Yeong are directors of Unico Holdings as well as Unico-Desa.

News of Unico-Desa shares being offered for sale en bloc appeared to have given the company's share price a lift yesterday. The counter jumped to a record high of 96.5 sen before finishing up 2.5 sen at 94 sen. The stock has gained 40.1 sen, or 74%, year-to-date. The company's market capitalisation stood at about RM830mil yesterday.

IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng said the group would consider the Unico-Desa offer and also look for bigger plantation companies to acquire.

CIMB Research said that with Unico-Desa's oil palm plantations located close to the estates of other bigger players such as IOI Corp and Asiatic Development Bhd, the big planters would be keen to acquire the majority stake in Unico-Desa “if the price is right''.

Unico-Desa has been hogging the limelight in the last two months over a dispute involving its parent company Unico Holdings' 29.3% shareholding in the oil palm plantation group.

The bone of contention is opposition by former director Tan Kai Hee, who was not re-elected at the AGM last month, to the company's plan to undertake a capital reduction exercise, which would be followed by the distribution of Unico-Desa shares to some 22,200 Unico shareholders.

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IOI sees record profit

30 Oct 2007

By KATHY FONG

PUTRAJAYA: IOI Corp Bhd, which is in the midst of finalising an asset acquisition, expects to post another record net profit for the current financial year ending June 30, 2008 (FY08) of more than RM1.8bil, said executive chairman Tan Sri Lee Shin Cheng.

Lee said it had sold forward half of the crop production volume at the average price of RM2,500 per tonne, compared with RM1,700 per tonne in FY07.

“The RM800 jump in CPO (crude palm oil) price per tonne should be an indicator that the group would not only sustain its earnings growth, but also improve further,” he said.

“FY07 was a record (profit) year. This financial year (FY08) will be another record,'' Lee added.

IOI Corp posted a net profit of RM1.48bil in FY07, up 79% from RM829mil in FY06. Revenue grew to RM8.95bil from RM6.1bil previously. The group's crop production for FY07 was 3.69 million tonnes.

IOI Propeties Chairman Tan Sri Lee reply to media after chaired AGM and EGM in Putrajaya on Monday

Lee said it would not be a problem for CPO price to reach RM3,000 a tonne.

“Whatever goes up must come down,” Lee said when asked if the uptrend in CPO price was sustainable at current levels.

He expected the correction of CPO prices would not be too drastic in the event of one due to the growing demand for palm-based products worldwide.

“CPO is no longer a commodity. It is an industrial product. Exports to the US have doubled because of the trans fatty acid issue,” he said.

Bullish CPO futures which surged to a record high of RM2,910 per tonne yesterday gave IOI Corp share price a timely lift to boost the stock to a historical high of RM7.50, a rise of 35 sen.

On the its expansion plans, Lee said the oil palm plantation group was currently in talks to acquire a plantation company. “It looks like it (the acquisition) will be completed in FY08,” he told a press conference after the AGMs of IOI Corp Bhd and IOI Properties Bhd yesterday.

He also said the group would consider the 57% stake in Unico-Desa Plantations Bhd offered for sale by Unico Holdings Bhd and two major shareholders.

“I would get my board members to look into Unico-Desa,” Lee said, but stressed that IOI Corp would not launch any “unfriendly takeover.”

Given an annual cash flow of RM2bil, Lee said financing was not an issue for the IOI group.

“We've got the appetite (for asset acquisition). We are looking for bigger companies than Unico-Desa,” he added.

On the group's property division, Lee said IOI Property wanted to build more commercial properties to pave the way for it to set up a real estate investment trust (REIT).

“We only have about one million sq ft of rentable area in IOI Mall, which is too little. We intend to raise it by 30% to 40% before we could set up a REIT,” he added.

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Lessons from IOI for Synergy Drive

Published October 29, 2007

MALAYSIA INSIGHT

The corporation's solid management is worthy of emulation by the new behemoth

By S JAYASANKARAN
KL CORRESPONDENT

LAST Friday, IOI Corporation - a plantations, oleochemicals and property conglomerate - became the second largest company on Bursa Malaysia (BM), the Kuala Lumpur stock exchange, with a market capitalisation of RM41.4 billion (S$18 billion).

Malayan Banking (Maybank) remains tops at RM44 billion, while IOI Corp pushed state-owned utility Tenaga National to third spot at RM40.3 billion. The rest of Malaysia's corporate grandees are familiar names: Public Bank (RM38 billion), Malaysian International Shipping Corporation (RM37.1 billion), Bumiputra-Commerce Holdings (RM36.4 billion) and Telekom Malaysia (RM35 billion).

For IOI Corp to come this far is a tremendous feat; it was nowhere near such exalted heights, say, twelve years ago.

How it did so is what a soon-to-be-created entity called Synergy Drive might want to research.

To be sure, high palm oil prices was the immediate trigger that pushed IOI Corp shares up last Friday: the benchmark crude palm oil futures contract hit RM2,776 a tonne and seems poised to test the record RM2,800 mark soon.

But more importantly, IOI is superbly managed. On almost all counts, it boasts better efficiencies and superior returns on its assets - whether in plantations, property, oleochemicals manufacturing, even hotel management. Stripped of the rhetoric, it has what securities house CLSA calls 'a solid management track record'.

The company is now the world's largest producer of oleochemicals from palm oil - courtesy of acquisitions of Dutch and Indian refineries this year and last - and made a net profit of RM1.48 billion on RM8 billion of sales for its 2007 financial year against consensus earnings forecasts of RM1.3 billion odd. And it remains a top pick for institutional investors.

Some time in November, Synergy Drive will be listed. It represents a work in progress that had its seeds in a plan presented to Prime Minister Abdullah Ahmad Badawi by businessman Chua Ma Yu in 2003. His plan was simple: take six plantation firms owned by the state agency and merge them to create the world's largest listed oil palm company with 5 per cent of global palm oil supply, over 600,000 hectares of land and, conceivably, Malaysia's biggest firm in terms of value. Investment bank CIMB took Mr Chua's idea and ran with the ball, promoting the merger last year and the result next month will be Synergy Drive, which is likely to be renamed Sime Darby.

Synergy is likely to become the biggest firm in the country upon listing: its sheer size and euphoria over high palm oil prices will ensure that outcome. Indeed, preliminary estimates of Synergy's market capitalisation are anything between RM60 billion and RM70 billion. But can it stay that way?

Given the cyclical nature of the oil palm business, that is unlikely. Even so, Synergy Drive can do a whole lot more. The whole idea behind the merger plan was to increase productivity in Malaysia's palm oil industry, to increase the country's competitiveness to face challenges thrown up by new Asian investment magnets, particularly China and India.

For the longest time, the companies that make up Synergy - from Sime Darby to Golden Hope - have consistently underperformed companies like IOI Corporation. On every conceivable performance index - from yield per hectare to return on assets - the state-owned plantation companies have lost out to IOI.

If they could get even close, the results would be astonishing. Here's one statistic to chew on: Last year, IOI produced 806,627 tonnes of crude palm oil while Synergy's combined output was 2.1 million tonnes. If it does get its act together a la IOI, its production will be a whole lot higher. And Malaysia would truly have a world-class brand.

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Mild boost only from IOI’s Indonesian venture

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20 Sept 2007

IOI Corporation Bhd’s acquisition of several Indonesia-based oil palm plantation firms for nearly US$90 million (RM315 million), would boost its bottomline by only RM3.3 million to RM10.5 million per annum over the next three years, said Aseambankers Equity Research.

“Nevertheless, we raised our FY08 and F09 earnings forecast by 4.7% and 3.1% respectively to reflect the higher average CPO price assumption for FY08 and FY09,” it said.

It forecast CPO prices to rise from RM2,250 per tonne to RM2,350 in FY08 and for FY09, it expected the price to increase from RM2,150 to RM2,200 per tonne, respectively.

Aseambankers Research said it maintained its “fully valued” call, but raised its target price to RM4.80 (previously RM4.70) based on 18 times FY09 fully-diluted earnings per share (EPS).

On Tuesday, IOI Corp said that it was acquiring several Indonesia-based oil palm plantation companies as part of the group’s strategy to grow its core palm oil business under appropriate conditions.

The company had inked an agreement to acquire a 33% stake in PT Bumitama Gunajaya Agro which has a total planted area of 35,300ha and unplanted land of 64,500ha, together with three palm oil mills.

It also signed an agreement to acquire a 67% stake in several companies with total land available for planting of 52,700ha (significantly reduced from the previously reported 128,000ha as the remaining land was unsuitable for planting after due diligence).

The acquisition will be funded by existing cash and borrowings, and targeted for completion by end-2007.

However, Aseambankers Research said that of the 68,000ha of effective interest by IOI Corp, 11,630ha had been planted of which only 4,648ha are young mature (against IOI Corp’s existing 140,000ha mature plantation; minimal).

It estimated the Indonesian venture is unlikely to make any meaningful contribution to IOI at least over the next four years.

“We understand that IOI Corp has targeted to open 10,000ha of new land per annum at US$3,000 development cost over a three year period. But judging from IOI Corp’s lack of local experience, we believe the actual planting in the initial years could be significantly lower based on experiences shared by other Malaysian planters,” it said.

IOI Corp buys oil palm firms for RM289m

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19 Sept 2007

KUALA LUMPUR: IOI Corporation Bhd (IOI Corp) is acquiring several Indonesia-based oil palm plantation companies for a total of nearly US$90 million (RM289 million) as part of the group’s strategy to grow its core palm oil business under appropriate conditions.

It had entered into agreements to acquire Singapore-based investment holding companies Lynwood Capital Resources Pte Ltd and Oakridge Investments Pte Ltd from Ivygate International Ltd and Red Canyon Enterprise Ltd, and Oleander Capital Resources Pte Ltd from Goldharvest Group Holdings Ltd, for US$62.63 million and US$20.3 million respectively.

The deal will also see IOI Corp owning 33% of PT Bumitama Gunajaya Agro (BGA), and 67% each in PT Agro Mandiri Sejahtera, PT Ketapang Sawit Lestari, PT Bumi Sawit Sejahtera, PT Kalimantan Prima Agro Mandiri, PT Berkat Nabati Sejahtera and PT Sukeses Karya Sawit. Under the agreement, IOI Corp will repay US$9.6 million on behalf of BGA, owing to Ivygate and Red Canyon.

The proposed acquisition, which will be completed in the last quarter of 2007, will be funded by existing cash reserves and borrowings.

In a statement released yesterday, it said BGA has a total planted area of about 35,300ha and unplanted land of about 64,500ha, as well as three oil mills. It also oversees a plasma scheme of about 21,800ha.

The second deal would provide a 52,700ha piece of land for planting excluding areas allocated for plasma schemes.

It said IOI Corp would provide plantation management, agronomy and related technical support services to achieve better efficiency and cost effectiveness, while the remaining shareholders would be responsible for human resource and regulatory matters, which included the procurement of issuance of relevant land titles.

It said expanding the plantation business in the country had became more difficult due to scarcity of plantation land, adding that Indonesia’s proximity to the country was ideal for the group’s plantation expansion overseas.

Values boom in parts of corridor

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17 July 2006

In Pusat Bandar Puchong, the prices of double-storey terraced houses have appreciated substantially since the project kicked off in 1994. The smallest 18’ x 65’ units which were priced at RM117,000 have appreciated to RM220,000 today while the 20’ x 70’ units are changing hands for RM300,000 from the launch price of RM150,000.

Land value, especially those surrounding Putrajaya, was reported to have appreciated from RM1.50 psf before the development of Putrajaya to RM50 psf now.

According to Putrajaya Holdings Sdn Bhd chief executive officer Azlan Abdul Karim, Putrajaya and Cyberjaya offered the most growth potential. Putrajaya in particular, has invested in excellent infrastructure, amenities and architecture. This will pay off in the future as the city matures.

“In terms of concept planning, Putrajaya is a showcase city and the architectural and planning efforts made throughout the city ensures that it will be a tourist attraction to rival international cities in years to come,” Azlan told StarBiz.

IOI Properties Bhd director Datuk David Tan said with the growing affluence of the population in the corridor, the types and prices of properties being developed here have reached the levels of those in established neighbourhoods in Petaling Jaya and Kuala Lumpur.

“With these, developers are compelled to meet expectations on quality of workmanship and customer service,” he added.

IOI is one of the property companies that had made it big in Puchong in the 1990s through its 930-acre Bandar Puchong Jaya followed by the 930-acre Bandar Puteri Puchong. Tan said the company still believed in the corridor’s potential and had lined up a new township on 550 acres at the entrance to Cyberjaya.

“This new township has been carefully planned taking into consideration the needs of house buyers. We have gained valuable feedback from our buyers and have new concepts and ideas on housing and environmental designs that will fulfil their more discerning expectations,” he added.

IOI’s future launches in Bandar Puteri Puchong would include higher end bungalows and corporate offices fronting the Damansara Puchong Expressway.

This is a big improvement from its early days as a pioneer developer in Puchong where the initial phases comprised modestly priced terrace houses “to attract buyers to the region.” To enhance the image of the once-remote region, the company ploughed in much investment in infrastructure, including the district police station and quarters, community hall, main roads, flyovers and the IOI Mall. As the company's success grew, its subsequent developments catered for a much wider catchment market.

Another early developer in Puchong, SP Setia Bhd also went on to become a big success in the property business.

Despite having moved on to the western growth corridor as its two flagship developments, Setia Alam and Setia Eco Park, are in Shah Alam, group managing director and chief executive officer Tan Sri Liew Kee Sin said the company was thankful for the opportunity to develop Pusat Bandar Puchong as it turned out to be a signature showcase of an SP Setia development.

“The mature township on 700 acres has all the hallmarks of innovative designs, quality workmanship, extensive landscaping and well-planned masterplan.

“Over the 10 years of developing Pusat Bandar Puchong, we have reinforced our reputation as a quality developer. Pusat Bandar Puchong is today regarded as one of the greenest and most well maintained townships in the vicinity.”