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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