KUALA LUMPUR: IOI Corp Bhd’s valuations and shares could be negatively affected following US Customs and Border Protection’s (CBP) probe on the plantation group over forced labour allegations.
Last week, IOI said it would assist in any investigation after CBP said in a letter to an activist that it was investigating the firm over forced labour allegation.
Although there is no financial impact to the plantation company, brokerage firms believe that valuations and shares could be impacted due to the increasing concerns of environmental, social and governance (ESG) ratings or the issuance of a Withhold Release Order (WRO) by CBP.
PublicInvest Research said concerns over ESG ratings may put off foreign investor interest which stands at 10.63% currently.
As such, the research house has reduced its valuations on IOI, resulting in a lower sum-of-the-parts (SOP)-based target price of RM4.41, maintaining a neutral recommendation on the planter.
“The various allegations have not only tarnished the industry image, they have also affected the company valuations.
“This can be seen when its forward valuation is currently trading at a price-to-earnings ratio of 20.5 times compared to the 10-year average of 28 times.
“In line with our previous downward revision on both Sime Darby Plantations Bhd and FGV Holdings Bhd valuations, we also reduce our valuations on IOI Corp from 25 times to 23 times for plantation segment and 20 times to 18 times for manufacturing, ” it said.
IOI is the third palm oil plantation company in Malaysia to face US scrutiny over its treatment of migrant workers.
Last year, CBP has banned palm oil imports from FGV Holdings and Sime Darby Plantations over the forced labour issue, which drove global buyers to away.
In the short-term, Public Invest Research said the group’s share price could also see temporary weakness due to the uncertainties.
As CBP would take time to make a decision on the allegation, CGS-CIMB Research said the overhanging risk may dampen the share price performance although IOI’s confidence in defending itself are positive attributes.
“We reduce our target price to RM3.97 after applying a 10% discount to our SOP to reflect this concern.
“We are retaining a “hold” call and the share price is partially supported by buyback programmes, ” it added.
In the last five years, IOI has worked with a number of local and international labour rights experts and non-governmental organisations (NGOs) who have monitored the implementation of its labour policies and provided recommendations on improving its labour policies, practices and conditions at its plantations.