The 9 Things You Need To Know About IOI Corporation Bhd Before Investing

In 1969, Tan Sri Dato’ Lee Shin Cheng has established Industrial Oxygen Incorporated Sdn Bhd. Eleven years later, the company was listed under Industrial Oxygen Incorporated Bhd. In 1995, the listing name was officially changed to IOI Corporation Bhd, a name that is retained till today.

Since its listing on Bursa Malaysia, IOI Corporation Bhd (KLSE:IOICORP) has expanded its plantation assets through acquisition of palm oil estates. In the 2000s, IOI Corporation Bhd has ventured into downstream palm oil manufacturing activities. As such, IOI Corporation Bhd has grown into one of the leading integrated palm oil conglomerates in the world.

In this article, I’ll cover 9 things you need to know about IOI Corporation Bhd before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: IOICORP / KLSE: 1691
Market Capitalization: RM 28.55 Billion (30 September 2017)

Share Price: RM 4.54 (30 September 2017)

Industry: Palm Oil

Syariah Compliant: Yes

#2: The Business

IOI Corporation Bhd has established an integrated business model that involves:

• Upstream Activities

  In 2017, IOI Corporation Bhd has 90 estates with a total planted area of 174,396 hectares of palm oil plantations. It operates 15 palm oil mills with a total milling capacity of 4.75 million tonnes of fresh fruit bunches (FFB) per annum.
  
  IOI Corporation Bhd has achieved lower yields from its plantation estates. This has resulted in lower FFB productions in 2016 and 2017. This, in turn, has caused the fewer production of crude palm oil (CPO) and palm kernel (PK) over the last 2 years.
  
  Figures in ‘000 Metric Tonnes
  

Year	2013	2014	2015	2016	2017
FFB	3,409	3,507	3,542	3,145	3,156
CPO	708	752	782	697	691
PK	179	186	187	164	155

Source: Annual Reports of IOI Corporation Bhd

• Downstream Activities

  IOI Corporation Bhd has 3 business segments in its downstream activities. They are refining, oleochemical, and speciality oils & fats.
  
  The refining segment receives CPO and PK from its CPO mills and would produce palm and palm kernel oil fractions. They will be sent to the company’s oleochemical and speciality oils & fats segment as feedstock. In 2017, the refining segment operates 4 palm oil refineries with total refining capacity of 3.3 Million MT per annum.
  The oleochemical segment receives feedstock from its refineries to manufacture fatty acids, glycerine, soap noodles and fatty esters. These products are exported to over 60 countries worldwide. This segment operates plants in Penang and Johor with a combined production capacity of 740,000 MT per annum.
  The speciality oils & fats segment receive feedstock from its refineries to manufacture fractionated oils & blends which are often used as ingredients in the processed food industry. This segment is carried out by IOI Loders Croklaan which has operations in the Netherlands, Malaysia, Canada, and the United States. These products are exported to over 85 countries worldwide.
  Over the last 5 years, IOI Corporation Bhd has maintained its sales of oleochemicals and specialty oils & fats products at 500,000 – 600,000 MT and 700,000 – 800,000 MT per annum.

Figures in ‘000 Metric Tonnes

Year	2013	2014	2015	2016	2017
Refineries	3,052	2,707	2,591	2,427	2,415
Oleo	561	584	586	596	582
Oils & Fats	735	735	774	783	766

Source: Annual Reports of IOI Corporation Bhd

• Bumitama Agri Ltd

  Bumitama Agri Ltd is a 31.8%-owned associate company of IOI Corporation Bhd. Listed on the SGX, Bumitama Agri Ltd is one of the fastest growing palm oil companies in Indonesia. In 2016, it has 175,243 hectares of palm oil estates and 13 CPO mills. For more details, please click Bumitama Agri Ltd.

#3: The Financials

In 2013, IOI Corporation Bhd’s financials were inclusive of sales & profits derived from IOI Properties Group Bhd. This is because IOI Properties Group Bhd was a subsidiary of IOI Corporation Bhd in 2013.

In 2014, IOI Corporation Bhd has recorded a one-off gain of RM 1.89 Billion from the demerging exercise of IOI Properties Group Bhd. This has resulted in high shareholders’ earnings of RM 3.37 Billion in 2014.

In 2015, IOI Corporation Bhd has incurred RM 735.3 Million in net foreign currency translation loss on foreign currency denominated borrowings. This has resulted in low shareholders’ earnings of RM 168.1 Million in 2015.

In 2016 and 2017, IOI Corporation Bhd had made RM 629.7 Million and RM 743.2 Million in shareholders’ earnings respectively.

Figures in RM Million

Year	2013	2014	2015	2016	2017
Sales	12,199	11,911	11,621	11,739	14,127
Earnings	1,970	3,373	168	630	743
ROE	n/m	n/m	3.3%	8.8%	10.0%

n/m refers to not meaningful.

Source: Annual Reports of IOI Corporation Bhd

#4: Growth Plans

In 2017, IOI Corporation Bhd has replanted 3,333 hectares of palm oil estates. It aims to replant 6,000 hectares of palm oil estates per annum in the immediate future. At present, the management projects IOI Corporation Bhd to produce between 3.5 – 4.0 Million MT of FFB per annum over the next 3 years.

Source: Annual Report 2017 of IOI Corporation Bhd

#5: Major Announcements

On 12 September 2017, IOI Corporation Bhd has entered into a sales & purchase agreement to divest 70% interest in IOI Loders Croklaan (specialty oils & fats segment) and its related businesses to Bunge Ltd for a total consideration of EUR 297 Million plus USD 595 Million. This transaction is expected to be completed in 12 months, leaving IOI Corporation Bhd with 30% interest in IOI Loders Croklaan.

#6: Risks

Inevitably, IOI Corporation Bhd faces two inherent risks such as:

1. Movements in Palm Oil Prices
   This is subjected to a combination of many factors. They include weather, crude oil prices, soybean oil prices, palm oil production and inventory levels. In 2017, IOI Corporation Bhd has reported its average sales prices of CPO and PK to be RM 2,766 and RM 2,691 per tonne respectively.
   
2. Movements in Foreign Currencies against Ringgit Malaysia
   In 2017, IOI Corporation Bhd derived 80.2% of its group revenues from overseas. It is exposed to various currencies mainly the US Dollar. In 2017, IOI Corporation Bhd has a total of US$ 5.63 Billion in US Dollar denominated borrowings. Adverse movements of the US Dollar against Ringgit Malaysia will negatively impact the profitability of IOI Corporation Bhd.

#7: Valuation

As I write, IOI Corporation Bhd is trading at RM 4.54 a share. In 2017, IOI Corporation Bhd had recorded RM 0.118 in earnings per share (EPS). Thus, its current P/E Ratio works out to be 38.47. Also, as at 30 June 2017, IOI Properties has reported having RM 1.19 in net assets a share. Thus, its current P/B Ratio works out to be 3.82.

#8: Investors Relation

For further enquiries on IOI Corporation Bhd’s Investors Relation matters, you may contact:

Mr. Kong Kian Beng

Designation: Deputy Group Financial Controller

Telephone: (603) 8947 8888

Email: investor.relations@ioigroup.com

#9: Major Shareholders

As at 28 August 2017, the substantial shareholders of IOI Corporation Bhd are:

– Tan Sri Dato’ Lee Shin Cheng: 48.44%

– Employees Provident Fund Board: 9.28%  

– Amanah Saham Bumiputera: 4.38%

What Do You Think Of  IOI Corporation As An Investment? Will You Invest In It? Share Your Views Below

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ian’s personal capacity. It does not in any way represent those of his employer and other related entities. Ian does not own any companies mentioned.

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