MARKET DEVELOPMENT
IOI Corp Plans Expansion Despite Slowdown, Low Price
IOI Corp Plans Expansion Despite Slowdown, Low Price
07/01/2015 (The Star) - IOI Corp Plans Expansion Despite Slowdown, Low Price.
IOI CORP BHD
By PublicInvest Research
Neutral (maintained)
Target Price: RM4.58
PublicInvest Research said despite a slowdown in demand and the low level of crude palm oil prices, IOI Corp’s management is looking to plant around 6000 ha in Indonesia and replant about 8000 ha in Malaysia (about 5% of Malaysian planted area).
By the end of the 2015 financial year, there will be about 8000 ha coming into maturity in Indonesia.
Total planted area in Indonesia will stand at 21,000 ha while unplanted area will be about 20,000 ha, which will last for the next three to four years.
The IOI group is also looking at about 8% fresh fruit bunches (FFB) production growth, which is close to PublicInvest’s forecast of 6.9%.
The age profile is about 12.5 years old (Malaysia is 13 years old, Indonesia is less than four years old).
On the cost of production, it aims to maintain its cost of production of (ex-mill) RM1,200/metric tonne though the spending on fertiliser cost could be slightly higher due to a stronger US dollar.
Though there is an additional 30% refining capacity coming on stream from Indonesia next year, management reckons it would not be significantly affected as the majority of its refining capacity is for its own oleochemical manufacturing and specialty oils and fats segments.
Management also indicates that IOI will likely be out of the syariah-compliant list in the next review.
However, it will make a comeback by the November 2015 review.
BANKING SECTOR
By Affin Hwang Capital
Neutral (maintained)
THE various banking institutions in the country are expected to offer borrowers new effective lending rates (ELR) based on the Base Rate. Maybank’s base rate is the lowest at 3.2% followed by Public Bank at 3.65%, Standard Chartered at 3.67% and Citibank at 3.7% while the rest of the banks’ base rate have been set at an average 4%.
Affin Hwang believes the implementation of the new base rate mechanism will stir up competition among banks.
It is no doubt that banks which have set a lower base rate and ELR such as Maybank, Public Bank and Hong Leong Bank will have an initial edge as they tend to attract more enquiries compared to other banks.
Nevertheles, the outcome will depend on the final ELR being offered to borrowers.
Affin Hwang does not think that the implementation will significantly improve a bank’s bottomline over the longer run though accepting customers with a higher risk profile wll enable a bank to price the ELR higher and hence earn a more profitable net interest margin (NIM).
However, that would mean potentially higher default rates in future and any loan pricing will still be dependent on management’s risk appetite.
Affin Hwang maintains its Neutral rating on the Malaysian banking sector given a muted earnings outlook going into 2015 as it foresees continuous NIM pressure, further weakening in loan growth, and lacklustre capital market activities. It is believed the impact of the base rate will be relatively immaterial.
RUBBER SECTOR
By HLIB Research
Neutral (maintained)
THE Center for Disease Control and Prevention (CDC) has officially declared flu as an epidemic in the United States with 15 child deaths and 22 states reporting the virus.
The CDC reported that about 90% of the flu cases are caused by the H3N2 influenza virus, which leads not only to more hospitalisations and deaths, but also causes their vaccines to lose its efficacy.
This unfortunate development is viewed by HLIB Research to be positive for the rubber sector as higher hospitalisation rates and higher demand for healthcare services will increase the demand for rubber gloves.
HLIB Research will continue to monitor its development and observe whether it escalates to pandemic level. It is maintaining its neutral stance until it sees further deterioration translating into glove demand.
Possible catalysts for the sector include a surge in demand in the event of a disease outbreak, more stringent requirements and increased spending in the healthcare sector, the appreciation of the US dollar against the ringgit and lower rubber prices to boost profitability.
Likely risks the research house saw include a mismatch between the demand and supply in rubber gloves, a potential increase in natural and/or synthetic latex prices, and a depreciation of the US dollar against the ringgit.
IOI CORP BHD
By PublicInvest Research
Neutral (maintained)
Target Price: RM4.58
PublicInvest Research said despite a slowdown in demand and the low level of crude palm oil prices, IOI Corp’s management is looking to plant around 6000 ha in Indonesia and replant about 8000 ha in Malaysia (about 5% of Malaysian planted area).
By the end of the 2015 financial year, there will be about 8000 ha coming into maturity in Indonesia.
Total planted area in Indonesia will stand at 21,000 ha while unplanted area will be about 20,000 ha, which will last for the next three to four years.
The IOI group is also looking at about 8% fresh fruit bunches (FFB) production growth, which is close to PublicInvest’s forecast of 6.9%.
The age profile is about 12.5 years old (Malaysia is 13 years old, Indonesia is less than four years old).
On the cost of production, it aims to maintain its cost of production of (ex-mill) RM1,200/metric tonne though the spending on fertiliser cost could be slightly higher due to a stronger US dollar.
Though there is an additional 30% refining capacity coming on stream from Indonesia next year, management reckons it would not be significantly affected as the majority of its refining capacity is for its own oleochemical manufacturing and specialty oils and fats segments.
Management also indicates that IOI will likely be out of the syariah-compliant list in the next review.
However, it will make a comeback by the November 2015 review.
BANKING SECTOR
By Affin Hwang Capital
Neutral (maintained)
THE various banking institutions in the country are expected to offer borrowers new effective lending rates (ELR) based on the Base Rate. Maybank’s base rate is the lowest at 3.2% followed by Public Bank at 3.65%, Standard Chartered at 3.67% and Citibank at 3.7% while the rest of the banks’ base rate have been set at an average 4%.
Affin Hwang believes the implementation of the new base rate mechanism will stir up competition among banks.
It is no doubt that banks which have set a lower base rate and ELR such as Maybank, Public Bank and Hong Leong Bank will have an initial edge as they tend to attract more enquiries compared to other banks.
Nevertheles, the outcome will depend on the final ELR being offered to borrowers.
Affin Hwang does not think that the implementation will significantly improve a bank’s bottomline over the longer run though accepting customers with a higher risk profile wll enable a bank to price the ELR higher and hence earn a more profitable net interest margin (NIM).
However, that would mean potentially higher default rates in future and any loan pricing will still be dependent on management’s risk appetite.
Affin Hwang maintains its Neutral rating on the Malaysian banking sector given a muted earnings outlook going into 2015 as it foresees continuous NIM pressure, further weakening in loan growth, and lacklustre capital market activities. It is believed the impact of the base rate will be relatively immaterial.
RUBBER SECTOR
By HLIB Research
Neutral (maintained)
THE Center for Disease Control and Prevention (CDC) has officially declared flu as an epidemic in the United States with 15 child deaths and 22 states reporting the virus.
The CDC reported that about 90% of the flu cases are caused by the H3N2 influenza virus, which leads not only to more hospitalisations and deaths, but also causes their vaccines to lose its efficacy.
This unfortunate development is viewed by HLIB Research to be positive for the rubber sector as higher hospitalisation rates and higher demand for healthcare services will increase the demand for rubber gloves.
HLIB Research will continue to monitor its development and observe whether it escalates to pandemic level. It is maintaining its neutral stance until it sees further deterioration translating into glove demand.
Possible catalysts for the sector include a surge in demand in the event of a disease outbreak, more stringent requirements and increased spending in the healthcare sector, the appreciation of the US dollar against the ringgit and lower rubber prices to boost profitability.
Likely risks the research house saw include a mismatch between the demand and supply in rubber gloves, a potential increase in natural and/or synthetic latex prices, and a depreciation of the US dollar against the ringgit.