Thumbs up for IOI's conciliatory approach on RSPO suspension

PETALING JAYA: IOI Corp Bhd’s move to withdraw its lawsuit against the Roundtable for Sustainable Palm Oil (RSPO) is seen as a quicker and amicable resolution to its suspension, said MaybankIB Research.
It said since the filing of the challenge proceeding, IOI has engaged with many of its stakeholders such as customers, non-governmental organisations (NGOs) and the RSPO to resolve this matter. IOI has completed its action plan and on May 30 submitted to the RSPO a memorandum on its sustainability policy initiatives and resource deployment.
“Our view is unchanged in that IOI’s RSPO suspension will be resolved in six to 12 months from its April 4, 2016 suspension date. We maintain our contrarian ‘buy’ call on IOI with an unchanged target price of RM4.59,” said MaybankIB.
One of the key policy initiatives stated in the memorandum is IOI’s commitment to voluntarily adopt the more stringent RSPO Next certification system starting from end of year 2016. RSPO Next’s commitment includes no deforestation, no fire, no planting on peat, reduction of greenhouse gas, respect for human rights and transparency, and is applicable at an organisation wide level.
MIDF Research is also glad that IOI has submitted the memorandum on its sustainability policy initiatives to the RSPO. If the RSPO is satisfied with the memorandum as well as the actions that IOI has taken, it is possible that the suspension on IOI will be lifted.
“We believe that IOI Corp’s suspension may be lifted in less than a year given its proactive stance. The company has also abandoned the court process in which we believe will be more complicated and consume more time,” said MIDF.
The research house upgraded IOI to a “buy” and increased its target price to RM4.82, from RM4.25 previously.
“We have increased our forward price-earnings valuation to 23.1 times from 20.4 times as we believe that the time line for the RSPO suspension to be lifted has declined significantly post the withdrawal of the challenge in court.”
MIDF said it likes IOI due to its good earnings with its nine months core earnings jumping 25% to RM1.14 billion, it being the most liquid proxy to the Malaysian plantation sector to ride the crude palm oil price uptrend, and limited downside seen due to share purchases in the open market by Tan Sri Lee Shin Cheng’s family.