IOI Corp shares down marginally on RSPO certification concerns

PETALING JAYA: Shares in conglomerate IOI Corporation Bhd (IOI Corp) fell marginally yesterday following its suspension from the world’s largest association for ethical palm oil production, the Roundtable on Sustainable Palm Oil (RSPO).
The suspension means that IOI Corp’s CPO is no longer considered sustainably produced from April 1, 2016, therefore shedding the premium which comes with it.
IOI Corp’s RSPO membership was suspended last Friday as three of its operations in Indonesia’s West Kalimantan province were found to have violated a raft of RSPO standards meant to prevent rainforest destruction and social conflict, as well as breaching of other laws.
IOI Group was one of the founding members of the RSPO.
The suspension prompted investors to dump the plantation firm’s shares which saw its price slump by 11 sen or 2.4% some 30 minutes after the market opened yesterday.
IOI Corp shares fell to a low of RM4.54 yesterday before closing at RM4.63, a 2 sen or 0.43% decrease.
Meanwhile, the market barometer, the FBM KLCI index lost 1.38 points or 0.08% yesterday with the Plantation Index falling 0.18% to 7864.63 points.
In a note to investors yesterday, Public Invest Research maintained its “neutral” call on IOI Corp with an unchanged target price of RM4.86.
Analyst Chong Hoe Leong said he kept the recommendation for now as it was premature to factor in any impact from the suspension.
IOI Corp had prior to the suspension said that it sees a minimal impact from the suspension as it can continue to sell crude palm oil (CPO) without the RSPO certification, and its existing Certified Sustainable Palm Oil (CSPO) inventory remains unaffected and can continue to be sold as CSPO.
Chong said the suspension period only denies IOI Corp’s CSPO premium earnings on its palm oil products, which represents less than 0.5% of its total revenue or about RM60 million assuming it can sell its formerly CSPO as CPO.
“Though it might affect about 4% of our full-year earnings forecast, we think that the losses could be softened by the positive CPO price outlook,” he said.
However, Chong remained concerned over other unquantifiable losses including “reputational risk and financial risk” in the future as the group has extensive dealings with multi-national companies, including Unilever, in the European region.
He noted that IOI Corp sells about 750,000 tonnes of CSPO annually, about 96% of its palm oil sales.