Another record year for IOI Corp

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22 August 2007

It chalks up net profit of RM1.48bil on higher revenue

KUALA LUMPUR: IOI Corp Bhd announced yesterday yet another record profit for its 2007 financial year (FY07), boosted by high crude palm oil prices (CPO) and robust property sales.

The country's top plantation company expects its financial performance in FY08 to be good, and analysts feel the company is well-placed to realise its target should CPO prices continue to hover near record levels.

“IOI only benefited from half a year of high CPO prices and FY08's numbers should be better if palm oil prices remain high and the other divisions of the group such as property and manufacturing deliver,'' an analyst said.

For the year ended June 30, IOI Corp announced a net profit of RM1.48bil, or 24.13 sen a share, compared with RM829mil, or 14.51 sen a share, in FY06.

Revenue, as a result of higher volume in the manufacturing segment and high palm oil prices, jumped 47% to RM8.95bil from RM6.11bil while pre-tax profit rose 73% to RM1.99bil from RM1.15bil.

“All three major business segments achieved record operating profits,'' IOI Corp said in a statement to Bursa Malaysia.

For the fourth quarter, IOI Corp announced a net profit of RM451.7mil, or 7.28 sen a share, against RM211.9mil, or 3.58 sen a share, in the previous corresponding period.

Revenue was RM2.54bil for the fourth quarter compared with RM1.65bil previously.

IOI Corp said plantation earnings in FY07 was 46% better than in FY06 with the CPO price averaging 27% higher at RM1,759 per tonne compared with RM1,386 previously.

Fresh fruit bunches (FFB) production, at 3.69 million tonnes, was about the same level as in FY06 and IOI Corp said its resource-based manufacturing segment achieved a multi-fold increase in operating profit to RM405.4mil.

The company said its property business also achieved record pre-tax profit, which rose 62% to RM598.4mil from RM368.3mil in the previous year.

Profit from property was, however, boosted by a gain of RM160.7mil from the revaluation of investment properties as required under accounting standards.

For its fourth quarter, IOI Corp said the 8% increase in operating profit in its plantation segment was proportionately lower than the 16% increase in CPO price from the third quarter. That was because of the newly imposed cooking oil cess as well as higher fertiliser inputs in the fourth quarter.

“Resource-based manufacturing showed lower contribution for the fourth quarter because of volatile raw material prices,'' IOI Corp said.

While cost pressures may have risen, analysts feel IOI Corp is in a position to chalk up better profit in FY08, given the higher CPO prices seen now at over RM2,300 to RM2,400 per tonne compared with the average price in the fourth quarter.

“If the momentum is maintained, we can expect higher CPO prices in 2008,'' an analyst said.

How much higher would depend on the level of activity by hedge funds in CPO futures.

“In recent years, we have seen more participation by hedge funds in palm oil contracts,'' an analyst said. However, the general opinion is that their involvement in CPO futures pales in comparison with hedge fund activity in soy bean futures.

FFB production should improve as IOI Corp's trees are said to emerging from biological stress and the group's property division, analysts say, should do even better in FY08 as IOI Corp has forecast a 5% rise in yearly property revenue for the period.

Analysts feel the full-year contribution following the acquisition of Pan Century Edible Oils Sdn Bhd and Pan Century Oleochemicals Sdn Bhd last September would boost earnings from its resource-based manufacturing business.

IOI Corp rises 46 sen after record earnings

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24-08-2007

KUALA LUMPUR: IOI Corporation Bhd’s share price rose as much as 9% or 46 sen to an intra-day high of RM5.40 upon resumption of trading yesterday buoyed by record earnings for its financial year ended June 30, 2007 (FY07).

The counter closed 26 sen higher at RM5.20, with a total of 14.7 million shares done at between RM4.94 and RM5.40. The stock has been suspended since Aug 9 for a capital repayment plan.

The company is undertaking a capital repayment on the basis of a cash distribution of RM4.20 for each cancelled share, on the basis of one cancelled share for every 20 existing shares.

On Tuesday, IOI Corp reported its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007 (FY07), boosted by record earnings from the oil palm and property business segments.

Its net profit more than doubled to RM451.7 million in the fourth quarter ended June 30, 2007 from RM211.9 million a year earlier on the back of soaring crude palm oil prices.

IOI Properties Bhd’s share price rose to RM1.10 or 8.9% to RM13.50 yesterday after it reported a 22% rise in net profit to RM397 million for FY07, with the fourth quarter accounting for about 45% of the whole year’s earnings following a revaluation of investment properties.

It declared a second gross interim dividend of 30 sen per share payable on Sept 18, bringing the total dividends for FY07 to 65 sen per share.

IOI Properties was traded at between RM12.60 and RM13.60, with a total of 67,700 shares done.

Meanwhile, Bloomberg reported that palm oil producers had benefited as rising demand from China and India sent the commodity’s price to a record in June.

The report said IOI was seeking more estates in Malaysia and Indonesia, which together accounted for about 85% of the global palm oil output.

“We are positive on plantation stocks,” said Tan Beng Ling, who helps oversee about US$434 million (RM1.52 billion) of assets at Meridian Asset Management Sdn Bhd here.

Credit Suisse maintains ‘outperform’ on IOI Corp

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23-08-2007

CREDIT Suisse is maintaining its “outperform” rating on IOI Corp Bhd, which reported record earnings on Tuesday, citing the group as a proxy to relatively strong crude palm oil (CPO) prices.

For every RM100 per tonne increase in CPO price, IOI Corp’s FY08 and FY09 net profits would rise by about 3% to 4%, said the research house yesterday.

It also raised IOI Corp target price to RM6.12 from RM6.05 (rollover to a new financial year). “Any share weakness, once the share suspension is lifted today, should be seen as a buying opportunity,” it said.

IOI Corp Bhd recorded its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007 (FY07), buoyed by record earnings from the palm oil and property business segments. The FY07 net profit of RM1.48 billion was 78.8% above FY06’s net profit of RM829 million.

On the earnings, Credit Suisse said net profits were 8% above market consensus forecasts. Earnings before interest and taxation (EBIT) increased by 59% on-year as the plantation, manufacturing and property EBIT grew by 46% on-year, 22% on-year and 20% on-year respectively.

Stripping out the revaluation gain of RM160.6 million and the forex items, FY07 pre-tax profits were up 62% on-year.

However, CIMB Research downgraded IOI Corp to “underperform” as the latter’s core net profit, that excluded foreign exchange and property revaluation gains, was 6% to 8% below its RM1.34 billion forecast and consensus forecast of RM1.36 billion, as plantation and manufacturing earnings fell short of expectation.

“The principal de-rating catalyst is the potential share overhang from the conversion of US$370 million (RM1.3 billion) guaranteed exchangeable bonds as the share price now stands at a 5% premium over the exchange price.”

“For exposure to Malaysian planters, we prefer Kuala Lumpur Kepong Bhd and Asiatic Development Bhd, which offer better value,” it said.

CIMB Research said IOI Corp’s plantation earnings missed estimates due to a 4% shortfall in fresh fruit bunches output arising from lower yields and higher fertiliser costs, while its manufacturing contribution was lower in 4Q07 arising from weaker-than-expected margins.

It said IOI Corp did not announce a final dividend. The seven sen dividend announced earlier was below last year’s 8.7 sen and its forecast of 12 sen.

It also adjusted earnings per share (EPS) forecast upwards for IOI Corp’s share cancellation exercise, adding that it expected the plantation company to chalk up 26% EPS growth in FY08, driven by rising CPO price and higher property sales.

“Our target price which we continue to base on a forward price over earnings of 18 times, is reduced by 30 sen to RM5.20, mainly for the earnings tweaks and capital repayment of 12 sen.

“After outperforming the market by 21% year-to-date, the stock now offers only 5% upside to our target price, well below the 16% upside to our KLCI target. We are downgrading our call from ‘neutral’ to ‘underperform’, ” it said.

IOI Corp posts record earnings

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22-08-2007

by Lee Yu Tang

KUALA LUMPUR: IOI Corp Bhd has recorded its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007 (FY07), buoyed by record earnings from the palm oil and property business segments.

Announcing the results yesterday, it said the FY07 net profit of RM1.48 billion was 78.8% above FY06’s net profit of RM829 million. Pre-tax profit rose 73% to RM1.99 billion from RM1.15 billion.

Revenue rose 46.5% to RM8.95 billion from RM6.11 billion. Earnings per share doubled to 24.13 sen from 14.51 sen mainly due to higher volume from the resource-based manufacturing segment and higher crude palm oil (CPO) prices.

“Plantation earnings for the current year are 46% higher than the same period last year with CPO price averaging 27% higher at RM1,759 per tonne compared with RM1,386 per tonne while fresh fruit bunches (FFB) production was about previous year’s level at 3.69 million tonnes,” it said.

The operating profit of its resource-based manufacturing business jumped 216% to RM405.4 million from RM128.3 million previously.

IOI Corp said operating profit from the property development rose from RM331.3 million to RM397.2 million.

The property investments sub-segment’s profit surged 443% to RM201.2 million from RM37 million after including a gain of RM160.7 million and restating the investment properties at fair value.

For the fourth quarter, the group’s earnings more than doubled to RM451.66 million from RM211.91 million. Revenue recorded a 54% increase to RM2.54 billion.

Meanwhile, IOI Properties Bhd’s FY07 net profit rose 22.2% to RM397 million, with the fourth quarter accounting for about 45% of the FY07 earnings after the revaluation of investment properties.

It declared a second gross interim dividend of 30 sen per share payable on Sept 18, bringing the total dividend for FY07 to 65% or 65 sen per share.

Pre-tax profit increased 30.2% to RM555.17 million in FY07 from RM426.44 million, which included a gain of RM134.9 million after revaluating its investment properties. Revenue rose 15.7% to RM704.88 million.

Excluding the gain, IOI Properties pre-tax profit rose 20% or RM70.2 million due to better sales of its commercial and high-end residential properties.

For the fourth quarter, net profit rose 143% to RM181.76 million while revenue rose 14% to RM197 million.

IOI Corp opens higher on resumption of trade

by Surin Murugiah

23-08-2007

KUALA LUMPUR: IOI Corporation Bhd opened 36 sen higher to RM5.30 this morning, buoyed by record earnings for the financial year ended June 30, 2007 (FY07) and the company's announcement of a capital repayment.

The counter hit a high of 41 sen before easing off to trade at RM5.25 at 10.00am, with 4 million shares done.

The company yesterday announced a capital repayment on the basis of a cash distribution of RM4.20 for each cancelled share, on the basis of one cancelled share for every 20 existing shares.

On Tuesday, IOI Corp reported its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007 (FY07), boosted by record earnings from the palm oil and property business segments.

JP Morgan keeps target for IOI Corp

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17-08-2007

JP MORGAN Research has maintained its June 2008 target price of RM6.30 for IOI Corp Bhd based on a enterprise value-to-capital employed ratio of 3.9 times for FY08. JP Morgan’s valuation implies a FY08 price-earnings ratio of 21 times.

IOI has proposed a joint venture (JV) for oil palm cultivation in Kalimantan with Harita Group. The deal, made up of two parts, involves IOI acquiring a 33% stake in PT Bumitama Gunajaya Agro (first JV) with a total planted and unplanted area of 35,340 hectares and 64,000ha respectively and three palm oil mills. The first JV also oversees a “plasma” scheme which covers an area of 22,000ha.

In the second JV, IOI will acquire a 67% stake in several companies with a total plantation land of 128,000ha.

The acquisitions would add to IOI’s planted oil palm land of 144,055ha located in Malaysia.

JP Morgan said the total cost for the acquisitions is estimated at US$130 million (RM455 million) based on a total enterprise value of US$385 million.

It said excluding the plasma landbank and the palm oil mills, pricing for the acquisition stood at US$1,693 per ha versus recent transactions in Sumatra for newly-planted land at US$4,500-US$5,500 per ha. (Transactions and asking prices of planted land in Sabah stands at US$6,000-US$7,000 per ha)

“The discount paid by IOI hence, we believe, is because 84% of the land acquired is non-planted, and also given the terrain, oil palm cultivation in Kalimantan is much more capital intensive with higher labour cost compared to Sumatra,” it said.

It said the acquisitions coupled with the group’s capital repayment would raise FY08 net gearing from 14% to a comfortable 46% given the group’s strong cash flows, while full conversion of exchangeable bonds could lower gearing to 23%.

Top 100 Companies: Biodiesel heralds the future for IOI

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By Leela Barrock

IOI Corp Bhd is the kind of counter that any serious investor in the sector will hold. There isn’t a research house that does not track the stock. There isn’t an institutional investor that does not have the stock in its sights. And how many of us retailers wish we could afford to buy into the plantation industry’s bluest of blue-bloods?
The IOI story has not changed much in principle over the last few years; all the staples of a well-managed company are there — strong management, strong shareholders, clear-sighted planning, planning way ahead into the future and so on. But IOI has that something extra — that little bit of magic called looking into the crystal ball and reading the future just right.
For instance, the famed Oreo cookie case in the US (a suit taken against Kraft in the US to curb the use of partially hydrogenated fats which are said to be bad for the heart) had not hit the local airwaves even, but IOI had already acquired speciality fats manufacturer Loders Croklaan in what some then saw as a coup while others took in their stride (“no big deal what, everybody looks for synergy”).
Today, the Loders buy makes so much sense it’s easy to wonder why every other Malaysian player did not leap onto the IOI bandwagon and buy comparably large and recognisable names in the industry.
But the Loders tale is an old one and there are new yarns to spin.
For the industry, the biggest story is, of course, in biodiesel.
“This is where the big upside is,” an IOI spokesman tells The Edge when asked where IOI’s share price can go now that it is over RM15.
The biodiesel industry is still in its embryonic stage and thus there are very few who can actually quantify just what kind of returns planters are looking at. The only certainty is that there is a hell of a lot of money to be had — and the smart money is already well-positioned to pick at the winnings.
For the likes of IOI, their bets are already placed with a biodiesel plant coming up in the Netherlands — smack in the middle of the European effort to go greener. But Europe is not the only potential market for biodiesel in the current environment of high oil prices.
“Of course, when the situation is right we will also be in Malaysia,” the IOI spokesman says.
Be that as it may, at RM15.40 a share (as at close last Tuesday), what can investors expect from IOI going ahead? Isn’t the stock fully valued and what about the dividend policy going forward?
“Our dividend policy has always been very generous but, when the opportunity arises, we will enhance our dividend payout even more,” the spokesman says.
In the five years between Jan 1, 2000 and Dec 31, 2005, IOI paid out a total of 147.5 sen in dividends and a 1-for-24 distribution in specie of IOI shares. Over and above that, a shareholder who bought IOI on Jan 1, 2000, would have forked out under RM3 a share but could have sold it at RM12.40 at end-December 2005. That’s an increase of over 300%. (Holding the shares for a few
months would have been the smarter alternative though, as IOI is trading at RM15.40, or 400% more now.)
Analysts familiar with the stock say based on old premises, IOI is fairly valued and the upside potential is pegged to crude palm oil price.
“With crude oil prices at current levels, biodiesel has become extremely viable not just from the environmental perspective. Thus, if CPO prices start to climb, stocks such as IOI are looking at massive upside potential as bottom-line growth will reflect this,” says an analyst.
In terms of planting strategy as well, the IOI spokesman says the company observes a strict replanting regimen of replanting 5% to 7% of its hectarage every year. “Thus, at any given point in time, 70% of our hectarage is at mature levels,” he says. Which means that 70% of IOI’s palms are at between the ages of 5 and 20 — the peak producing age of palm trees.
“We maximise returns this way,” says the spokesman.

11 Dec 2006: Corporate: IOI in a league of its own

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11 Dec 2006

The IOI Group is poised to become the largest producer of vegetable oil-based fatty acids in the world.
"This will give them tremendous pricing power in the edible oils market," says a foreign analyst. "When you have that kind of status, multinational companies will approach you because you are the biggest player in their market. This just pushes them into a whole different league."
Last Thursday, IOI announced that it is acquiring India-based Birla group's Pan Century Edible Oils Sdn Bhd and Pan Century Oleochemicals Sdn Bhd for RM423 million. With this acquisition, IOI will double its existing splitting capacity to 700,000 metric tons.
"This is something that IOI has tried to do for the country," group chairman and patriarch Tan Sri Lee Shin Cheng tells The Edge.
This announcement came just a week after Malaysia announced the creation of what will become the world's largest plantation company following the merger of Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd.
"Together, the two announcements put Malaysia on the map in a way we never have been before, even though we had all the right ingredients. Now, we are using these ingredients to create something that everybody will want a bite of," an analyst comments.
For IOI, the proposed Pan Century acquisitions are positive in more ways than the immediately obvious. For instance, an analyst says the Pan Century group has over RM100 million in tax credits. This means that for a specific duration, the effective contribution to tax for the two companies will be less than the current corporate tax rate of 26%.
"This is something that is not obvious but will go straight to the bottom line," the analyst says.
Another plus is the fact that IOI has been trying to increase its oleochemical capacity for over two years now, but was unable to find anything meaningful of good value. "This was a great chance and it fits in neatly with existing operations because the Pan Century plants are neighbours to IOI's facility in Pasir Gudang," the foreign analyst says.
Another analyst notes that at RM423 million, and considering Pan Century's profit after tax as at September 2005, the two companies are priced at a collective price-to-earnings ratio (PER) of about 12 times.
"IOI itself, at RM18.80 a share, is trading at a historical PER of 26 times. But then of course with IOI, you are paying for the whole story — what the group stands for, its sterling management credentials, its foresight, its efficiency, everything," the analyst says.
There is also little doubt in the minds of analysts that the two Pan Century companies will be turned into far more profitable ventures within a couple of years.
For its financial year ended Sept 30, 2005, Pan Century Edible Oils posted a profit after tax of RM20.121 million on revenue of RM1.57 billion. Pan Century Oleochemicals, meanwhile, posted a profit after tax of RM15.52 million on turnover of RM285.55 million.
Comparatively, according to a statement issued by IOI last Thursday evening, its manufacturing businesses reported operating profits of RM92 million for the quarter ended September 2006, which is more than double the operating profits of RM28 million for the previous corresponding quarter.
This is a far cry from the less-than-attractive oleochemical manufacturer Palmco Holdings Bhd, which IOI took over back in 1997.
It acquired a 32.96% in Palmco at RM4.35 per share in 1997 before the onset of the Asian financial crisis. The company was a loss maker at the time of the takeover and Lee, according to legend, swept in and cleaned up.
By its financial year ended June 1999, net profit was RM28.3 million. The next year, it had leapt to RM72 million. By FY2005, Palmco, by then reborn as IOI Oleochemicals Bhd, had posted a net profit of RM136.18 million. IOI Oleo was taken private soon after.
The Pan Century group owns the largest single-location vertically integrated palm oil refinery and oleochemicals complex in the world, with installed refinery capacity of one million tonnes a year.
According to IOI's statement, the production capacities of the Pan Century plants were expanded recently, which means that IOI will not have to cough up additional capital expenditure to increase capacity — at least for the near term.
One possible negative of the deal could be the fact that IOI will now become a net buyer of crude palm oil. With CPO closing at RM1,830 per tonne last Thursday, being a net buyer may not be a grand idea. However, those familiar with IOI say this may not be such an issue because the group has tied in its supplies for the future.
"Anyway, the margins in refining move in tandem with CPO prices, although the margins in oleochemicals and biodiesel move the other way," says a noted plantation analyst.

Corporate: Is IOI going into bio-fuel?

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9 August 2005

As far as corporate deals go, IOI Corp Bhd's move to take 61.03% subsidiary IOI Oleochemical Bhd private was not surprising. What it has done instead is to push IOI watchers into huddles trying to second-guess family patriarch Tan Sri Lee Shin Cheng's next move.
"Lee never does anything for no reason," says a foreign banker.
The fact of the matter is IOI Corp completed a US dollar-denominated Eurobond issue just this March raising US$500 million, which at exchange rates then, amounted to RM1.9 billion. This, added to some RM600 million in cash balances, left the group with over RM2.5 billion in cash.
"At first when we saw the IOI Oleo deal, we thought this was the reason for the bond issue, but no, it still does not quite add up," says a local analyst. Even if every minority opts for the all-cash option of the privatisation exercise, it would only cost IOI Corp RM880 million. If all the shareholders other than IOI Properties Bhd took the cash and share option, it would cost IOI Corp about RM130 million.
So what is the group going to do with the rest of its cash hoard, especially considering it has free cash flow of over RM700 million annually?
The speculation in the market now is that the group should be taking steps towards some other "far more expensive" venture.
"Bio-fuel?" speculates the local analyst.
Probably due to the newness of the subject matter, estimates on the cost of a bio-fuel refinery fluctuate wildly from "RM1 billion or thereabouts" to "well over RM2 billion".
Either way, if anyone can do it, IOI could. It has the cash and the acumen to pull something of this magnitude off. And of course a bio-diesel facility would neatly complete the family picture.
IOI Corp already owns specialty fats manufacturer Loders Croklaan and should by the second quarter of 2006 wholly own oleochemical manufacturer IOI Oleo as well. That takes care of the edible oils and specialty fats applications of crude palm oil (CPO). Leaving of course a conspicuous empty slot in the family picture, which could be neatly filled by the industry's new favourite talking point, bio-fuel.
"With crude oil prices hovering at US$60 a barrel, the call for increasing use of bio-fuel has started resonating around the developed world," notes the foreign banker.
Existing law in the EU requires diesel to be mixed with 5% of vegetable oil. The oil of choice has been rapeseed thus far. However, rapeseed is a far more expensive alternative compared to CPO, which is among the cheapest edible oils.
Industry estimates show that at US$50 a barrel, the price of crude oil is equivalent to RM1,380 per metric tonne of CPO. Considering that CPO is now at the RM1,400 level, that means that bio-fuel is still a tad expensive.
"However, there are expectations that crude oil prices can go even higher. But then, there is also the fact that bio-fuel is a renewable energy source and a viable alternative to fossil fuels," notes one industry player.
Of course, all such news would be great for IOI Corp.
Just to put things in perspective, a local analyst says that the US is expecting demand for bio-diesel to double in the next 18 months from the current annual estimated demand of 150 million gallons. An increase of 150 million gallons would significantly reduce existing CPO stockpiles of one million tonnes.
"Even at one million tonnes, our stockpiles at today's consumption are quite tight," comments the local analyst.
IOI, of course, as one of the largest producers of CPO in the world, would stand to benefit from any increased demand for bio- fuel. However, the real money would stand to be made if it can refine CPO into bio-fuel.

But why take IOI Oleo private
"Why not?" replies the foreign banker. "It's something they should have done. And they did it," he adds.
"It's good housekeeping. They needed to do some tidying and they have. Now the structure is a lot neater and it becomes easier to reorganise," says Scott Lim, chief investment officer at CMS Dresdner.
In a nutshell, IOI Corp has proposed to cancel the shares in IOI Oleo it does not hold, which includes 11.37 million shares or a 5.63% block held by IOI Properties Bhd. In return, shareholders will have the option of walking away with RM11.08 cash per share or a share plus cash option to swap three IOI Oleo shares for IOI Corp share valued at RM10.82 each and RM11.34 for each of the other two shares.
For IOI Corp, the deal is earnings accretive. According to a foreign house earnings, enhancements can range from 2% to 5% depending on which option the minorities take. A local house says if all the shareholders take the cash-only option, then expect additions to bottom line of 7% to 7.5%.
While the jury is still out on which option the minorities will opt for, analysts say minorities should take their time.
"We have a target price of RM11.50 for IOI Corp," says Yusree Mohd Yusof, senior plantations analyst at Southern Bank.
Thus, if IOI Corp's share price goes much higher than its close last Thursday at RM11.10, minorities stand to gain as the cash and share option values each IOI Corp share at only RM10.82.
As it stands, among the downside risks for the stock are bumper soya harvests, India increasing CPO import tariffs, China decreasing CPO imports and production at levels above expectations.
The issues pushing CPO consumption are of course the trans fats issue and the GMO issue. (GMO refers to genetically modified foods, of which CPO is not one. A significant percentage of soya oil is produced from GMO soya plants.)
Other than that, analysts say India has postponed replanting of its rapeseed crops due to unfavourable weather conditions while Brazilian soya harvests have been affected by Asian Rust disease.
"All these factors could cause a supply crunch which of course bodes well for the share price of stocks such as IOI," the local analyst comments.