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.