Muted impact expected from IOI paper pulp JV

PETALING JAYA: IOI Corp Bhd’s stake in the RM600mil joint-venture (JV) paper pulp plant in Pahang is expected to be diluted to 33.75% from the initial 45% with the entry of Xiamen C&D Corp in the project.

This means the impact of the project on IOI, from funding to its eventual after-tax contribution in the medium term, will be even more negligible, according to Kenanga Research.

“Strategically, IOI is investing in an environmental, social and governance (ESG)-positive project which needs some industrial, financial and market access to scale up,” the brokerage said in its report yesterday.

Nextgreen IOI Pulp Sdn Bhd (NIP) – a JV between IOI (45%) and Nextgreen Global Bhd (55%) – last week signed a memorandum of understanding (MoU) with China-based Xiamen C&D for the proposed development and operation of a RM600mil green and sustainable paper pulp production facility in Pahang.

Under the MoU, NIP and Xiamen C&D would establish a JV company, with equity interests of 75% and 25%, respectively.

The NIP and Xiamen C&D JV firm will be responsible for setting up a paper pulp production facility to be developed on 43 acres within the 410-acre Green Technology Park in Pekan, which is part of the Eastern Corridor Economic Region.

The proposed plant will have an initial production capacity of up to 100,000 tonnes of paper pulp per annum.

This will be made from oil palm empty fruit bunches (EFB) using Nextgreen’s patented preconditioning refiner chemical-recycle bleached mechanised pulp technology.

“Under the terms of the MoU, one of the key roles of Xiamen C&D is to off take the end-products, leaving NIP to manage and operate the project, including securing all the necessary approvals and EFB supply,” Kenanga Research noted.

“Essentially, IOI will be able to secure reliable EFB supply, not only from the group’s 18,798ha of oil palm estates in the state of Pahang, but also from various third-party plantations nearby.

“IOI’s downstream engineering expertise can potentially be tapped by the JV as well,” it added.

Kenanga Research has maintained its “market perform” rating on IOI.

It has an unchanged target price of RM3.80 based on two times price-to-book value (PBV).

The valuation was in line with the average PBV for larger integrated planters, plus a 5% premium to reflect a four-star ESG rating as appraised by Kenanga Research.

“We continue to like IOI for its efforts in the following – improving planting materials; increasing digitalisation; building infrastructures for greater mechanisation; as well as converting oil palm trunks into net-zero, palm-based wood products,” the brokerage said.

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