22/09/2012 (Borneo Post) - IOI Corporation Bhd’s (IOI Corp) lean production costs for its oil palm plantations place it among the most profitable planters in Malaysia.

It also boasts as one of the industry’s leading fresh fruit bunch (FFB) yields of more than 23 metric tonne (MT) per mature hectare and oil extration rates of around 21 per cent.

“The group’s extensive downstream resource-based manufacturing operations create added value and provide a ready ‘take-out’ source for its crude palm oil (CPO),” RAM Rating Services Sdn Bhd (RAM Ratings) said in its special research paper recently.

“Its specialty oils and fats division, which serves multinational food companies, ensures demand and pricing stability to a certain extent,” it added.

Moving forward, IOI Corp’s business and geographical diversity allowed it to ride through individual business and geographical economic cycles. In financial year (FY) June 2012, the plantation division contributed 60.6 per cent of its total operating profit.

Its property development and investment as well as resource-based manufacturing divisions accounted for another 17.7 per cent, 8.6 per cent and 10 per cent respectively.

Meanwhile, geographical revenue contributions had traditionally been distributed evenly among Malaysia, Europe and Asia while North America was a growing market.

“The group’s liquidity and debt-maturity profile has remained healthy, with a minimal concerns on large debt repayments over the next two years,” RAM Rating said. “IOI Corp derives substantial financial flexibility from its large holdings of development land and investment properties.”

On the financial front, the company had a relatively heavy debt load as well as debt guarantees to its jointly controlled entities in Singapore, due to the expansion of its property projects.

According to the rating agency, IOI Corp’s borrowings summed up to RM8.12 billion (US$2.56 billion) as at end-June 2012, with a gearing ratio of 0.63 times.

“This said, we note that the group has a hefty cash hoard,” it highlighted.

Returns to shareholders had been robust for the last two financial years, with a dividend payout ratio of more than 50 per cent.

Risk-wise, IOI Corp’s core businesses operate within cyclical industries. CPO was subject to price volatility and speculative pressures. Uncontrollable factors such as inclement weather and regulatory conditions could also adversely affect the group’s performance.

In addition, its property development and investment businesses were susceptible to economic cycles,” stated the rating agency.

In the near term, CPO prices were expected to average at a slightly lower RM2,900 per MT this year, due to higher inventory levels and persistent global headwinds.

“IOI Corp’s high degree of vertical integration and lean cost structure will allow it to mitigate the long-term negative effects of the recent restructuring of Indonesia’s and India’s tariffs on exports and imports of palm-related products, RAM Ratings concluded.