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IOI to ride on China’s palm oil demand

August 30, 2010 1 comment

China is one of IOI Corp Bhd’s top five palm oil markets and executive chairman Tan Sri Lee Shin Cheng sees stronger demand in the years ahead.

China, with 1.3 billion people, is the largest vegetable oil consumer in the world. Last year, China imported 6.6 million tonnes of palm oil.

“Naturally, we see very good potential in increasing our sales volume further,” Lee said in an interview with Business Times.

“We work closely with a few parties in China,” Lee said, stopping short of naming clients.

However, it is understood that one of IOI Group’s main clients is China’s largest food and oil trader, Cofco Ltd. Since 1994, Cofco has been consecutively listed among the Fortune Global Top 500 Enterprises. It is also one of 53 state-owned backbone enterprises under the direct administration of the Chinese central government.

Lee also expects the US dollar to weaken further in line with heightened prospects of the US entering a second recession. According to Bank Negara Malaysia’s website, US$1 is at RM3.14 currently, from RM3.45 six months ago. This means the US dollar has weakened by 9 per cent against the ringgit.

“The latest unemployment figures in the US are still disappointing. I foresee the ringgit strengthening further against the US dollar,” he said. “Just last week, economic data revealed deep concerns about the health of the US economy,” Lee said, drawing attention to Federal Reserve (Fed) chairman Ben Bernanke’s warning last Friday that the US economic outlook was inherently uncertain.

It was reported that the US economy grew at just 1.6 per cent in April, May, and June – not the 2.4 per cent initially projected. Bernanke suggested that the Fed was ready to pump more money into the economy through another large-scale buying of securities if conditions were to deteriorate significantly.

Despite the US economy facing a sluggish outlook, palm oil consumption continues to grow. Palm oil is seen as a healthy substitute to partially hydrogenated soft oils that contain artery-clogging trans fat. “The US imports about a million tonnes of palm oil annually. This market has been growing fast because of the trans fat issue. We’re increasing the capacity at our Chicago facility to gain market share there,” Lee said.

As at June 30 2010, IOI Corp’s net cash position was RM3.9 billion. Asked if the group plans to invest in bulking facilities in the US, he replied: “Not at the moment. But in the longer term, we may want our own bulking installation at a strategically located port to improve logistics efficiency.”

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Sime Darby set for revamp after Q4 loss

August 27, 2010 Leave a comment

Sime Darby Bhd, a merger of three entities just three years back, is set to be restructured again to improve governance after the conglomerate posted its second straight quarterly loss.

It will have six subsidiaries based on its core businesses that will have their own board of directors. The plan is to have it up and running as early as January 1 2011.

“The board of directors has given its endorsement to restructure the group for better accountability and to strengthen governance,” acting president and group chief executive Datuk Mohd Bakke Salleh said at a media briefing in Kuala Lumpur yesterday.

Sime Darby posted a net loss of RM77.35 million in its fourth quarter to June 30 2010. It had to make a further provision of RM773.3 million at its energy and utilities division.

The extra provision was for cost overruns at the Bulhanine and Maydan Mahzam installation project with Qatar Petroleum, the Maersk Oil Qatar (MOQ) project and the building of vessels for the MOQ project.

Provision for the full year, which includes those three projects and works for the Bakun hydroelectric station, totalled RM2.09 billion. This brings its full-year net profit to RM726.8 million, which is way below the RM1.7 billion that analysts had expected. Revenue improved to RM33 billion from RM31 billion in fiscal year 2009. Bakke said he did not expect Sime Darby to make further provisions based on the information that it has right now.

Earlier in the year, Sime Darby said it had no plans to sell any of its core businesses. But this may change. “We are assessing some of these investments. Once we are in a position to conclude that we should not hang on to some of these businesses, the appropriate decisions will be made.”

Four months ago, Sime Darby asked its group chief executive officer Datuk Seri Ahmad Zubir Murshid to go on leave pending an internal probe into the energy and utilities division’s losses. Zubir’s contract expires on November 26.

Yesterday, group chief operating officer Datuk Abd Wahab Maskan said that Zubir was still on the payroll. “Technically, he is still on a leave of absence. He is still president and chief executive officer of Sime.” It is understood that Zubir receives an annual salary of RM2 million.

Bakke was appointed acting president and group chief executive effective July 15 this year.

Meanwhile, chief financial officer Tong Poh Keow said that Sime Darby’s capital expenditure for fiscal year 2011 will be about RM5.4 billion, which is about the same as the previous year’s.

In separate filings to the exchange yesterday, Sime Darby said that Tan Sri Amar (Dr) Tommy Bugo @ Hamid Bugo, Datuk Seri Lim Haw Kuang and Sreesanthan Eliathamby had been appointed as independent and non-executive directors. Lim was previously the chairman of Shell Malaysia, while lawyer Sreesanthan is a partner at Kadir, Andri & Partners.

QL Resources plans RM400 million capex

August 25, 2010 2 comments

QL RESOURCES Bhd has set aside RM400 million over the next two years to expand its poultry, fishing and oil palm planting businesses, managing director Chia Song Kun said.

It will use the money to set up poultry farms, build more deepsea boats, plant more oil palm trees and build a mill in Indonesia.

“We are allocating RM200 million for the current year ending March 2011 and a further RM200 million for 2012 for our business in poultry farming, planting of oil palms and deepsea fishing,” he told reporters after the company’s annual general meeting in Petaling Jaya, Selangor, yesterday.

This year, it has revived long-awaited plans to set up poultry farms in Vietnam and Indonesia.

To date, the group has started construction of a layer and livestock feed farm in Tay Ninh, Vietnam. QL’s US$10 million (RM31 million) investment targets production of 500,000 eggs a day in the financial year ending March 2012. Over in Indonesia, QL is pumping US$20 million (RM62 million) into a breeder and layer farm in the Cianjur district. Its target for the current year is 12 million “day-old chicks”. In the longer term, it expects egg production to touch one million a day.

Traditionally, half of QL’s profit comes from integrated livestock farming. It is currently the second largest distributor of livestock feed in the country, producing seven million broilers and 16 million day-old chicks a year.

A couple of days ago, QL told the stock exchange it bought a 23 per cent stake in rival Lay Hong Bhd. Coincidentally, London Biscuits Bhd sold its entire 16 per cent stake in Lay Hong. QL’s investment in Lay Hong’s business will enable it to leverage on economies of scale and import poultry feed at cheaper pricing.

Lay Hong can produce 1.5 million eggs a day and five million broilers a year. Its nuggets and burgers are sold under the brand names of Nutriplus and Wise Choice.

Without factoring in Lay Hong’s business, QL has 20 per cent share of the egg market in the country. It can produce 2.5 million eggs a day.

QL, which makes 25,000 tonnes of surimi a year, is also Asia’s biggest surimi producer. It also produces 30,000 tonnes of marine-based products and 25,000 tonnes of fishmeal a year.

QL’s oil palm plantation landbank totals 21,200ha, out of which 20,000ha are in Indonesia. Chia said the group is investing about RM25 million to put up biogas and biomass plants at its Sabah palm oil mill to turn waste into green energy.

To date, QL has planted 7,500ha on its east Kalimantan oil palm estates. It will spend US$15 million (RM47 million) to instal a mill there.

Despite the high capital expenditure allocated for the next two years, Chia has reassured shareholders that the group can, and will continue to, pay out 25-30 per cent of group profits as dividends.

IOI’s Q4 profits up on lower tax

August 25, 2010 Leave a comment
MALAYSIA’S second largest palm oil producer IOI Corp Bhd saw its fourth-quarter profit rise by 12 per cent, mainly due to lower tax charges. IOI Corp’s full-year profit doubled to RM2.04 billion on foreign exchange gains, no further property losses in Singapore and better palm oil prices.

Net profit for the quarter to June 30 2010 was RM547.05 million, a slight improvement from RM487.07 million in the same quarter a year ago. Revenue, however, slid 2 per cent to RM3.06 billion.

IOI Corp, controlled by the family of Tan Sri Lee Shin Cheng, expressed caution for the current year ending June 30 2011. “The global economic growth is starting to show signs of slowing down. It will be a challenging year ahead,” the group said in its filing to Bursa Malaysia yesterday.

IOI Corp only paid RM77.12 million in tax charges compared with RM111.95 million during the fourth quarter. It was lower because the group posted more non-taxable income and factored in previously unrecognised tax losses.

In the year ended June 2010, IOI said its 80-odd estates produced 732,275 tonnes of palm oil output, 6 per cent less than 777,310 tonnes harvested in the previous year.

In the quarter under review, the group’s plantation profit was 6 per cent higher despite the lower harvest. Higher palm oil pricing in the international market had helped boost its bottom line. “Average palm oil prices realised for the fourth quarter is RM2,504 per tonne compared with RM2,455 per tonne for the fourth quarter of 2009,” it said.

IOI Corp’s operating profit in its oleochemical business fell 28 per cent to RM135.7 million.

Its property business also reported a 28 per cent drop in operating profit to RM190.8 million due to lower appreciating value in investment properties.

Total dividend for the financial year just ended amounted to 17 sen per unit of 10 sen share each.

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IOI’S GROWTH BELOW INDUSTRY AVERAGE

KUALA LUMPUR, Aug 25 (Bernama) — IOI Corp Bhd’s growth will continue to be below industry over the next four to five years, unless it plants more aggressively, says OSK Research.

“IOI’s low production of young trees means its growth would remain relatively stagnant, hence earnings growth and stock price appreciation would also slow down.

“The stock has been underperforming its peers and we do not see any rerating catalyst on the horizon,” OSK said in a research note today.

OSK also said, based on its numbers, IOI’s young mature trees only made up about 8 per ent of its mature hectarage compared to its peers of between 20 and 35 per cent.

“Its percentage of trees not yet at peak maturity is also low at 15 per cent compared to its peers at 28 per cent to 46 per cent. This means IOI’s growth will continue to be below industry, unless more aggressive planting takes place,” OSK explained.

It also said with IOI’s new refinery in Rotterdam having started operations in July and along with palm oil price volatility starting to pick up, refinery margin should improve.

However, this is provided, the company can ensure sufficient palm oil supply after cutting off Sinar Mas Group as supplier.

“We make no change to our earnings forecast, which has factored in contribution from the new refinery. There’s room for an earnings upgrade if IOI”s effective tax rate stays at its fourth quarter level and our target price based on 15 times of current year 2011 earnings, is maintained at RM3.91,” OSK explained.

Meanwhile, Kenanga Research said: “Based on guidance, fresh fruit bunches production will most likely improve 5 per cent year-on-year and which we have adjusted accordingly in lowering our assumptions by some 7 per cent.”

The Multinationals’ Dilemma — Gratify the Greens or Protect the Poor?

August 19, 2010 Leave a comment

This is an opinion piece by James M. Roberts, published in FOXNews.com.

Greenpeace and other radical green groups are big on “corporate social responsibility” (CSR). What constitutes CSR, you’ld ask? Among other things, the willingness to let the “green” agenda trump sound business practices. 

Of late, the greens have taken to pressuring Western multinational companies to forswear buying paper and palm-based products from the Asian tropics. Timber, paper and palm oil produced in the tropical belt are valued for their high quality and low cost.

The campaign thrills Greenpeace donors, but threatens lasting harm to billions of men and women in poor nations.

But radical greens oppose any commercial development in the tropics, which they want to preserve as pristine wilderness. And so they harass the multinationals, accusing them of razing the rainforest and destroying habitat for orangutans, tigers, and other endangered species.

The gambit works. Global food giant Nestlé recently suspended imports of palm oil from Asia. So have Unilever and Procter & Gamble. Now retailers Wal-Mart and Carrefour are under fire for buying paper goods from the Asian region. And mega-bank HSBC is being pressured to halt economic development projects in Indonesia, Malaysia and other developing countries.

But in pressing its cause, Greenpeace willfully ignores some inconvenient, yet vitally important facts. For starters, palm oil is environmentally friendly. On a per-liter basis, palm oil production requires less energy and land-and fewer fertilizers or pesticides-than other vegetable oils.

What’s more, Indonesia and Malaysia–both major palm oil and paper producers–have put 25 per cent and 50 per cent of their forest cover, respectively, off limits to development and established extensive wildlife protection efforts. In other words, both nations are being socially responsible.

So what’s the real driver behind the anti-development campaigns led by European green groups? First, let’s consider Europe’s vegetable oil producers, timber producers and paper manufacturers. They don’t much like competition from the Asian market.

European policymakers know protectionism is illegal, so they are trying to block imports on environmental and public relations grounds. EU member states support radical green groups which then demonize trade in foreign goods. What European policymakers and companies can’t do legally in global trade courts they are trying to accomplish instead via the court of public opinion.

Western multinationals shouldn’t go along with what amounts to illegal protectionism that threatens to undo the decades-long drive to open markets led by Western nations.

But there is an additional and important moral dimension at play, too. Left unchecked, the Greenpeace campaign will inflict massive economic misery on some of the world’s poorest nations. Tens of millions of Asian men and women rely on the jobs and economic growth provided by their export industries. How is it socially responsible to deny a livelihood to them and their families?

Nestlé and other firms shouldn’t ignore these socially irresponsible tactics. For example, in a shameless effort to alarm consumers, a recent Greenpeace-produced ad hijacks Nestlé’s iconic “Kit Kat” bar (which contains palm oil) and implies that-by using palm oil-Nestle harms orangutans. But the ad is a lie. The governments where the palm oil is produced are protecting their wildlife.

Instead of quietly egging them on, European authorities should be investigating Greenpeace for possible trademark or copyright violations in its malicious and willfully misleading appropriation of Nestlé’s brand. Consumer goods companies and global retailers should not let anti-business zealots manipulate those brands for political gain and the benefit of special interests.

Running a large, global business is hard work, and success takes singular focus. Great harm can result when big companies are distracted and moved “off task” by the narrow interests of activist groups and their political supporters. It is time for Western multinationals to make a stand for real economic progress and development and take a stand against the scare tactics of Greenpeace and its ilk.

James M. Roberts is Research Fellow for Economic Freedom and Growth in The Heritage Foundation’s Center for International Trade and Economics.

Palm oil, the new cure?

August 11, 2010 1 comment

This is written by a colleague at Penang Bureau, Looi Sue-Chern.

GEORGE TOWN: Palm oil is set to shed its negative image as more scientific researches on the commodity revealed its potential as a cure for many illnesses. Plantation, Industries and Commodities Minister Tan Sri Bernard Dompok said research had revealed that the commodity provided a natural remedy to many ailments including fatty liver and stroke.

He said such positive developments could offset misconceptions about palm oil.

“While the government continues to work on how the industry can increase its productivity in a more sustainable manner without using more land, such new researches will open doors to new possibilities and markets. Although the industry has been accused of being environmentally unfriendly, it is also a source of renewable energy such as biogas and biomass.”

He was speaking after a presentation by Universiti Sains Malaysia (USM) researchers Dr Enrico Magosso and Professor Ibrahim Lutfi Shuaib on the use of palm tocotrienols (palm Vitamin E) in treating non-alcoholic fatty liver disease (NAFLD) and preventing stroke.

Palm oil is to date the richest source of tocotrienol, the superior form of Vitamin E that is high in antioxidants.

Tocotrienols obtained the Self-Affirmed GRAS (Generally Regarded as Safe) status in September 2007 from the US Food and Drug Administration.

Apart from being used in food like margarine, salad dressing, mayonnaise and potato chips, tocotrienol has also been proven to contain anti-cancer properties as well as neuro and vascular protective properties.

Dr Magosso, an Italian researcher from USM’s School of Pharmaceutical Sciences, said after a one-year clinical trial on 64 volunteers suffering from NAFLD, 20 out of 30 patients treated with tocotrienol showed improvements with 15 being cured.

He said although more studies must be conducted to convince people that tocotrienol works, the discovery had presented an answer to NAFLD, a silent disease that affects 90 per cent of diabetic and obese people of all ages and 60 per cent of Malaysians with high-cholesterol.

“This natural remedy has proven effective in treating NAFLD and has every potential to be the treatment of choice. The market opportunity of 500 million people worldwide is vast for Malaysia, which is the world’s second largest palm oil producer.”

Tocotrienol has also proven to work in preventing stroke, the nation’s third largest cause of death after heart diseases and cancer.

Ibrahim Lutfi said, in a two-year study on 1,000 people with white matter lesion, a neuronal damage in the brain that is related to stroke, five out of seven subjects who were treated with tocotrienol showed improvements.

“Only one subject out of the remaining three, who received placebo treatments, showed improvements while the condition of the other two deteriorated.

We hope tocotrienol, when used widely in the field of medicine, will have a positive impact in neuro treatment and prevention of cardiovascular diseases,” said Ibrahim Lutfi, who is from USM’s School of Advanced Medical and Dental Institute.