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.