PUTRAJAYA: IOI Corp Bhd expects its financial performance for the current FY12 ending June 30 to improve from a year earlier, buoyed by improved profitability in its resource-based manufacturing division.
Datuk Lee Yeow Chor, group executive director, said the current lower crude oil palm (CPO) prices compared with those of FY11 will translate into a higher profit margin for its resource-based manufacturing division, which refines palm oil and processes it into oleochemicals and speciality oils and fats.
“We felt the impact [of higher CPO prices] in the last financial year,” he told a press conference after the company AGM yesterday. With the current [softer] palm oil prices ... we think the impact will be less severe this financial year,” he said.
IOI’s resource-based manufacturing segment reported a 29% drop in operating profit to RM404.3 million in FY11 due mainly to lower sales and lower margins, especially in the oleochemicals and speciality fats sub-segments, according to notes accompanying its announcement to Bursa Malaysia.
The lower profitability led the division to contribute some 15% of IOI’s total operating profit for FY11 compared with 24% for FY10.
Nonetheless, its other divisions — plantation and property — continued to do well and registered 33% and 19% increases in operating profit for FY11.
In total, IOI reported a 7% increase in operating profit for FY11 to RM2.82 billion, with plantation business the biggest contributor (55%) followed by property (27%).
Nevertheless, IOI group executive chairman Tan Sri Lee Shin Cheng does not believe low CPO prices will be a long-term thing as tighter supply and growing demand will nudge prices up.
“We can see yield didn’t go up that drastically but the demand is still there,” said Shin Cheng, Yeow Chor’s father.
“Therefore, I don’t foresee CPO prices dropping any further. From now on, the price has to go up. It has come down from RM3,500 to RM2,800 a tonne now, and I think it is about time for it to jump above RM3,000 again,” he said.
A boost for CPO prices is strong demand from China, India and Pakistan.
“The import figures (for Malaysia’s palm oil) for the first 15 days of this month are higher than the same period last month, which is slightly more than 10%, and this shows demand for the commodity is still strong,” said Yeow Chor.
He added that the substantially lower CPO prices compared with soyoil also make the former a preferred choice.
However, Yeow Chor admitted that IOI is not spared the impact of Indonesia slashing the export tax of processed CPO from that country, which could clip the profits of refiners in competitor Malaysia.
The top palm oil producer in the world, Indonesia recently cut the tax rate for CPO exports in a bid to jump start its refineries.
Shin Cheng said IOI is still positive on the long-term prospects of its property projects in Singapore, even though the property market in the island republic has slowed down recently due to cooling measures imposed by its government.
“Property markets around the world are very uncertain for now, but still people prefer to buy in Singapore,” he said.
He added that IOI expects returns from its investment in the Singapore property market made some five years ago (of about RM5 billion) to start flowing into the group in the next two to three years.
On the local front, he said IOI plans to spend RM1.5 billion over the next few years to develop IOI Resort, which includes the construction of a shopping complex, golf course, two blocks of offices and an additional hotel.
“We hope to complete [the shopping complex] by end-2013,” he said. “And when it is completed, it is going to be one of the best in Southeast Asia. We are bringing in well-known architects from the US to design the complex.”
IOI closed three sen or 0.6% higher at RM5.03 yesterday with a total of 3.4 million shares changing hands, giving the group a market capitalisation of RM32.3 billion.
This article appeared in The Edge Financial Daily, October 25, 2011.
Datuk Lee Yeow Chor, group executive director, said the current lower crude oil palm (CPO) prices compared with those of FY11 will translate into a higher profit margin for its resource-based manufacturing division, which refines palm oil and processes it into oleochemicals and speciality oils and fats.
“We felt the impact [of higher CPO prices] in the last financial year,” he told a press conference after the company AGM yesterday. With the current [softer] palm oil prices ... we think the impact will be less severe this financial year,” he said.
IOI’s resource-based manufacturing segment reported a 29% drop in operating profit to RM404.3 million in FY11 due mainly to lower sales and lower margins, especially in the oleochemicals and speciality fats sub-segments, according to notes accompanying its announcement to Bursa Malaysia.
The lower profitability led the division to contribute some 15% of IOI’s total operating profit for FY11 compared with 24% for FY10.
Nonetheless, its other divisions — plantation and property — continued to do well and registered 33% and 19% increases in operating profit for FY11.
In total, IOI reported a 7% increase in operating profit for FY11 to RM2.82 billion, with plantation business the biggest contributor (55%) followed by property (27%).
Nevertheless, IOI group executive chairman Tan Sri Lee Shin Cheng does not believe low CPO prices will be a long-term thing as tighter supply and growing demand will nudge prices up.
“We can see yield didn’t go up that drastically but the demand is still there,” said Shin Cheng, Yeow Chor’s father.
“Therefore, I don’t foresee CPO prices dropping any further. From now on, the price has to go up. It has come down from RM3,500 to RM2,800 a tonne now, and I think it is about time for it to jump above RM3,000 again,” he said.
A boost for CPO prices is strong demand from China, India and Pakistan.
“The import figures (for Malaysia’s palm oil) for the first 15 days of this month are higher than the same period last month, which is slightly more than 10%, and this shows demand for the commodity is still strong,” said Yeow Chor.
He added that the substantially lower CPO prices compared with soyoil also make the former a preferred choice.
However, Yeow Chor admitted that IOI is not spared the impact of Indonesia slashing the export tax of processed CPO from that country, which could clip the profits of refiners in competitor Malaysia.
The top palm oil producer in the world, Indonesia recently cut the tax rate for CPO exports in a bid to jump start its refineries.
Shin Cheng said IOI is still positive on the long-term prospects of its property projects in Singapore, even though the property market in the island republic has slowed down recently due to cooling measures imposed by its government.
“Property markets around the world are very uncertain for now, but still people prefer to buy in Singapore,” he said.
He added that IOI expects returns from its investment in the Singapore property market made some five years ago (of about RM5 billion) to start flowing into the group in the next two to three years.
On the local front, he said IOI plans to spend RM1.5 billion over the next few years to develop IOI Resort, which includes the construction of a shopping complex, golf course, two blocks of offices and an additional hotel.
“We hope to complete [the shopping complex] by end-2013,” he said. “And when it is completed, it is going to be one of the best in Southeast Asia. We are bringing in well-known architects from the US to design the complex.”
IOI closed three sen or 0.6% higher at RM5.03 yesterday with a total of 3.4 million shares changing hands, giving the group a market capitalisation of RM32.3 billion.
This article appeared in The Edge Financial Daily, October 25, 2011.
