 GROWING DIVISIONS: Photo shows an artist’s impression of IOI Corp’s Skypod Residences Development in Bandar Puchong Jaya. IOI Corp is looking into leveraging on its improving property division and downstream operations to offset its potentially weak |
KUCHING: IOI Corporation Bhd (IOI Corp) is looking into leveraging on its improving property division and downstream operations, given the increasing property development activities in Malaysia as well as Singapore.
The performance of IOI Corp in its property division and downstream operations would potentially offset its upstream plantations division which was expected to be weak going forward due to the lacklustre crude palm oil (CPO) prices.
According to RHB Research Sdn Bhd (RHB Research) in a recent research note, while approximately 70 per cent of IOI Corp’s earnings came from the upstream and downstream plantations operations, the research firm opined that IOI Corp’s focus in recent times was on the expansion of its property earnings, both in Malaysia and in Singapore.
While this move was not expected to bode well with investors who bought IOI Corp for its plantation exposure, the research firm remained optimistic as IOI Corp’s various property ventures were starting to bear fruit.
RHB Research outlined that its Malaysian property continued to stream in solid revenue and earnings to IOI Corp’s growth.
Over the borders, IOI Corp’s properties was also picking up pace as a number of projects had already been launched and several more were in its pipeline in Singapore, the research firm highlighted.
“As earnings from its overseas property ventures start to come in, we believe IOI Corp may relook at the option of re-listing its property arm, which would enable investors to channel their investments in a more focused manner.
“While a relisting is not likely to come about anytime soon (given the election overhang), this option should not be ruled out,” it opined.
Meanwhile, the research firm noted, profitability at IOI Corp’s downstream manufacturing operations was improving, on the back of lower feedstock prices and improved competitiveness versus Indonesia.
In the second quarter of the financial year ended June 2013 (2QFY06/13), IOI Corp recorded earnings before interest and tax margins of 5.2 per cent, up from 2.2 per cent in 1QFY06/13 and 3.1 per cent in 2QFY06/12.
Additionally, the research firm said, IOI Corp’s refinery operations, which were running at utilisation rates of 80 per cent and above, currently recorded operating margins of US$15 to US$20 per tonne.
Its oleochemical and specialty fat operation was also seeing improving margins, although no guidance was given as to the quantum.
In the immediate term, the research firm pointed out that IOI Corp had no plans to expand its downstream operations, as several expansions had already been completed over the last one to two years, notably its refinery expansion in Rotterdam and its specialty fats expansion in Malaysia.
“We have projected IOI Corp’s manufacturing margins to range between three and four per cent in, up from 1.8 per cent in FY06/12,” it added.
On the other hand, with regards to IOI Corp’s upstream plantation operations, RHB Research said that albeit the potential lacklustre CPO prices, the group’s management was fairly optimistic on the CPO prices, as it expected the prices to range between RM2,400 and 2,700 per tonne over the near term.
“Management’s view is based on its belief that CPO stocks in Malaysia should come down towards two million tonnes in the next few months, as we move further into the off-peak season.
“IOI Corp does do some forward sales, but currently, it is only a small percentage of the group’s total CPO production of 0.7 million tonnes per annum,” the research firm explained.
It also noted that IOI Corp’s new planting in Indonesia, which had been slow in previous years, should start picking up pace from FY06/13 onwards.
“In terms of earnings contributions, we expect IOI Corp’s Indonesian plantations to start contributing more significantly (more than 10 per cent) to group plantation profits only by FY06/17 to FY06/18.”