IOI Corp (After Demerger With IOI Properties) ...

After the demerge with IOI of its property arm, IOI Corp became a pure palm oil player with both upstream and downstream operations.

IOI Corp is currently (Jan 2014) trading at a forward PER of around 16.7 times.

Without the property arm to help boost earnings, its net profit is expected to be smaller in the coming years from Jan 2014. In FY2013 ended June 30 the property division contributed about 33% to the group’s earnings, second only to the plantation arm’s 41%.

Notably, plantation companies have been affected by the high palm oil inventory levels, which translated into weak CPO prices and impacted its net profits. As a result, most plantation counters saw volatility in their share prices.

As the company realigned its focus to the plantation segment, IOI Corp will be more aggressive in looking for plantation landbank opportunities locally and overseas.

In Oct 2013, it had acquired Unico-Desa Plantations.

It now (Jan 2014) has a total of 230000ha in Malaysia and Indonesia of which 163000ha in Malaysia and 13000ha in Indonesia have been planted. Its Singapore based associate Bumitama Agri Ltd has some 115000ha land in Indonesia, 36000 of which IOI Corp has interest in.

Critics however said that IOI Corp’s oil palm trees are relatively prime with an average age profile of about 12 years,

Going forward, IOI Corp’s balance sheet will look cleaner post demerger as it plans to use rm1.8 billion of the proceeds to pare down its debt levels. Post – demerger, the company’s net borrowings will be reduced to some rm2.02 billion equivalent to net gearing of 32%.

It should also be noted that in times of volatile CPO prices, the earnings of fully integrated players have not been as badly affected as the pure upstream plantation companies.

IOI Corp would have to bank on further acquisitions of significant tracts of plantation land or an uplift in CPO prices as r rating catalysts.