30/10/05 (The Star) - IOI Corp Bhd has planted the seeds of success over the past 22 years. From "zero base", it has become a reputable plantation giant and one of the world's largest integrated palm oil producers.

The group is most admired for its profitable and cost-efficient plantation operations, which continues to bear the highest yield among the top plantation companies in Malaysia.

Compared to its listed plantation peers, IOI is the largest in terms of market capitalisation at RM14.5bil (as at Oct 28) with the most liquid stock getting the highest return on equity (ROE) and generous dividend payouts, according to plantation analysts.

For financial year ended June 30, 2005, the plantation earnings before interest and tax (EBIT) surged to RM777.9mil from RM638.7mil a year earlier, followed by downstream manufacturing at RM226.5mil and property at RM319.9mil.

IOI group executive chairman Tan Sri Lee Shin Cheng told StarBiz on the sidelines during a visit to the group's best performing Sagil Estate in Tangkak, Johor, last week that; "For IOI's plantation operations, size is no longer an indication of profitability."

"There is no point having a big hectarage if the returns are low," he said.

Tan Sri Lee Shin Cheng

He said IOI would not expand its plantation land bank for the sake of expansion because "we want to fully utilise and optimise the productivity from our existing hectarage."

However, Lee was quick to point out that IOI would continue to be on the look-out for "good" land bank in Malaysia and Indonesia for future oil palm cultivation.

For FY2005, the group's total hectarage spans 158,514ha. Of the total, 68% is located in Sabah while 32% in Peninsular Malaysia.

To-date, IOI's oil palm plantation exposure is confined to Malaysia, mainly in Sabah and Johor. He said the group has yet to diversify out of the country.

Citing Indonesia, he said: "For economies of scale, if I want to start.....I will need at least 30,000ha to remain at a comfortable level."

Lee said the most successful plantations are those with hands-on management teams that have a vested interest and those that are passionate about the plantation sector.

"I always have a fixed target (on how to boost production of fresh fruit bunches). The first step towards getting the group's average six tonnes of CPO per ha per year has been achieved," he said. The second step would be targeting the "magic number" - a CPO yield average of eight tonnes per ha per year.

"If this happens, IOI will be able to double its productivity with the same hectarage of land it owns," Lee added.

Meanwhile, Lee has confirmed IOI's interest to venture into bio-fuel related activities in the near term.

He said IOI is definitely looking at bio-fuel prospects, which has the potential to further enhance the group's future earnings.

IOI has recently secured a long-term contract with the Netherlands-based Biox Group BV to supply palm-based products, namely palm fatty acid distillate (PFAD) and refined, bleached and deodorised (RBD) olein.

Biox, which is Europe's largest and fastest-growing supplier of special bio-fuel blends for the energy sector, is renting a site at IOI's Loders Croklaan facility in Rotterdam for the setting up of a bio-fuel power plant.

"Loders' refinery was completed this month and now running at a capacity of between 700,000 tonnes and one million tonnes per year," said Lee.

At a later stage, Biox will possibly supply the power generated from its proposed bio-fuel plant to Loders, Lee said.

"The deal with Biox is quite synergistic as the Loders refinery will be able to constantly supply a different fraction of palm oil-based products like PFAD and olein to Biox while Loders will be able to obtain power at a lower rate from Biox's palm bio-diesel plant," he added.

Asked whether he is interested to take up a stake in the Biox bio-fuel plant, Lee said: "Anything is possible, I shall consider when the time comes."

In Malaysia, Golden Hope Plantations Bhd is seen as the most aggressive plantation group venturing into three bio-diesel plants - two to be set up in Banting, Selangor and one at its wholly-owned Unimills plant in the Netherlands.

Plantation analysts contacted generally have an "overweight" stance on the Malaysian plantation sector as many are bullish on CPO prices, which are set to be driven by structural changes such as rising demand for bio-diesel, the anti-GMO (genetically modified organisms) movement in the European Union, increasing demand from China and the trans-fatty acid mandatory labelling in the United States, beginning Jan 1 next year.