IOI Corp's plantation in Johor
KUALA LUMPUR: Public Investment Bank Research (PIVB) expects IOI Corporation Bhd
(IOI) to report better earnings outlook in the next financial year, spurred by higher crude palm oil prices (CPO) and recovery in fresh fruit bunch (FFB) production.
The integrated palm oil company expects to see an increase in capital expenditure allocation to RM350mil to RM400mil for financial year 2017 (FY17), compared to RM237mil for the previous financial year.
The higher spending is mainly due to more new planting activities in 2016.
PIVB Research forecasts a 5% FFB production growth for IOI in FY17, as the management predicts a gradual recovery of production in the coming months.. To note, in the last financial year IOI experienced a 11.2% drop in FFB production due to the extreme weather period.
The company is aiming to plant more landbank because as of FY16, IOI has 179,271ha of planted area, whereby 83% of the land size can be considered as under mature area. IOI expects to plant 3,000ha in Indonesia in the next three years.
IOI is planning to reduce its gearing by US$100-US$150mil (RM420-RM629mil) as there is no opportunity to acquire assets in the short-term. Currently, its net gearing stands at 0.73 times.
Pertaining to IOI’s Roundtable on Sustainable Palm Oil suspension, PIVB hinted that the corporation is trying to re-establish business relationship with its former clients.
However, some of their contract period have closed currently and the process of re-negotiation may only take place after waiting for three months.
IOI’s management expects the capacity utilization level to remain steady for refining, oleochemical and specialty oils & fats segments.
Refining activities are expected to be better as refining margin between Malaysian and Indonesian has become more competitive given the higher CPO export tax adopted in Malaysia.
The research house has reiterated its “neutral” call with an unchanged target price of RM4.78.
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