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发表于 6-10-2008 10:31 AM
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Monday October 6, 2008
IOI to stay resilient on diversified base
By LEONG HUNG YEE
It is not too dependent on palm oil to drive growth and earnings
IOI Corp Bhd, which has been favoured by investors for its strong earnings visibility, is expected to continue its good performance despite the possibility of crude palm oil (CPO) prices falling further in the coming months.
Analysts believe that IOI Corp will continue to be resilient because it is able to leverage on its diversified base and is not too dependent on one business, particularly palm oil, to drive growth and earnings.
The group is also involved in the upstream and downstream manufacturing of oleochemicals as well as property development.
“IOI Corp has been able to perform better than many of its peers because the group could leverage on a diversified earnings stream,” an analyst said.
Although analysts are still upbeat on IOI Corp, investors continue to dump their holdings on concerns that weaker CPO price and rising costs would hurt the planter’s earnings outlook.
IOI Corp has seen its share price hammered in the past two weeks, reflecting market concerns about higher palm oil inventories and softening CPO prices.
CPO futures have dropped by more than half since trading at a record RM4,486 in March, as stockpiles rose
Its share price dropped to an 18-month low of RM4.10 with 17.4 million shares changing hands on Friday.
An analyst said the decline, however, had made IOI Corp’s valuation more appealing, at least for investors with a medium to longer term investment time frame.
CPO futures have dropped by more than half since trading at a record RM4,486 in March, as stockpiles rose. The contract for December delivery has fallen to RM2,000 per tonne on the Bursa Malaysia Derivatives.
AmResearch has maintained its hold recommendation on IOI Corp but raised its forecast financial year ending June 30, 2009 (FY09f) earnings upwards by 3% as higher CPO selling price is offset by higher plantation costs. It also expects IOI Corp’s manufacturing earnings to be softer due to weaker selling prices and demand.
“IOI Corp has sold forward almost six months of its FY09f CPO production at prices between RM3,000 and RM3,500 a tonne.
“Assuming that the group achieves an average CPO price of RM2,300 per tonne for the balance of its output, the average CPO price realised for FY09f could be RM2,750 a tonne. This is significantly higher than our assumption of RM2,200 per tonne,” AmResearch said.
Despite the potentially higher average CPO price realised, AmResearch expected IOI’s plantation earnings to shrink due to higher fertiliser costs, which had gone up by more than 30%.
It added that IOI Corp should be able to match last year’s revenue due to locked-in CPO prices.
“However, we think that there could be a squeeze in margins due to higher operating costs. Margins of the downstream activities could also be affected on the back of lower sales and potentially slower demand growth,” it said.
OSK Research, which has a neutral call on the plantation sector maintained its “trading buy” calls on most of the plantation companies under its coverage.
“We advise investors with longer term horizons (exceeding 12 months) to accumulate plantation stocks on the current price weakness,” it said in a report.
OSK said it was not overly concerned about a post-Olympics economic slowdown in China as edible oil consumption per capita should continue to grow with the increase in wealth.
The research house was more concerned over the global economy, particularly that of developed countries, which probably still had room to slow down further.
“The sharp pullback in palm oil as well as plantation stock prices represents a cyclical downtrend within a very much intact secular bull trend, which we believe will reassert itself sometime in the first half of 2009,” OSK said.
Going forward, analysts said IOI Corp should continue to perform well, despite a possibility of CPO prices falling further in the coming months.
Plantation analysts said CPO prices were currently hovering around the RM2,000 per tonne level and could go either way for sometime.
“As long as the world needs cooking oil, soap and other fats and fuels that can be extracted from palm trees, lower prices will increase demand,” an analyst said.
An analyst said IOI Corp was expanding its downstream production facilities, which would transform Pasir Gudang in Johor into a major palm oil processing centre.
He said the expansion was timely considering the weakening CPO price.
It would pave the way for IOI Corp to further develop its downstream operations in line with its plans to diversify into the speciality oils and fats business.
IOI Corp is the only Malaysian company that has made it to the latest Forbes Asia Fabulous 50 List.
Forbes said although palm oil prices fell and IOI’s shares dropped early this year, the company was listed for the third straight year because it was one of the most efficient palm oil producers, with yield per hectare of about 50% higher than its rivals in Malaysia and Indonesia.
http://biz.thestar.com.my/news/story.asp?file=/2008/10/6/business/2187895&sec=business |
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