Moody's Investors Service has affirmed the ratings of cash-rich IOI Corporation Bhd and maintained the stable outlook due to its strong liquidity profile with a large cash balance of RM2.3bil as of March 31, 2019.
KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its sell call for plantation heavyweight IOI Corp with a target price of RM3.70 compared with Tuesday's share price of RM4.50 due to the weaker results expected.
It said on Wednesday that after the disposal of Loders Croklaan Group (Loders) on March 1, 2018, the management is looking for opportunities to acquire new landbank to further expand its upstream and downstream operations which mainly focus on the palm-based industry.
“However, there is no attractive deal on hand now. For 11MFY18, fresh fruit bunches (FFB) production was 3.3 million tonnes, on track to meet our expectations of 3.5 million tonnes (+12% on-year). The 4QFY18 results are likely to be weaker on-quarter and on-year on softer crude palm oil (CPO) average selling price,” it said.
Recall that IOI Corp had transferred 70% of its equity interest in Loders in March 2018. The sales proceeds would be used to repay borrowings (50%), working capital (29.75%), dividends (20%) and disposal expenses (0.25%).
Post disposal, management targets to focus on:
Upstream operation. IOI Corp plans to plant 8,000ha of new areas in the next three years, bringing total planted landbank to 29,000ha. Management is also actively looking for opportunity to acquire new landbank to further expand its upstream.
Post disposal of Loders, 50% of the sales proceeds would be utilised for repayment of bank borrowings.
Its net gearing ratio improved to 0.32 times from 0.78 times as of June 2017 which strengthens its balance sheet position and provides IOI Corp room to leverage if there is suitable landbank.
“However, we understand that the acquisition of new landbank might not be easy due to the strict new planting policy, stringent sustainability regulation and high land prices.
Downstream operation. Management is also looking to expand its downstream operation through joint venture or merger & acquisition, which will mainly focus on the palm-based industry. However, there is no attractive deal on hand currently.
The Sustainable Palm Oil Policy (SPOP) is the main guiding document for IOI Corp’s sustainability practices, which was launched in March 2014 and revised in August 2016.
A few measures have been taken by IOI Corp to ensure the sustainability of palm oil production and sourcing. IOI Corp is committed to apply the newly revised High Carbon Stock Approach (HCSA) methodology.
Moreover, the another key area that IOI Corp is enhancing its effort is Human Rights and Workplace which includes no recruitment fees charged to workers, payment of monthly minimum wage in accordance with the current labour regulations and access of trade unions to workers.
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