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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