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Research firms maintain 'buy' on IOI Corp after equity sale in BLC

08/08/2022 12:08 PM

KUALA LUMPUR, Aug 8 (Bernama) -- Research firms are maintaining a 'buy' recommendation on IOI Corporation Bhd (IOI Corp) following the company’s 10 per cent equity sale in Bunge Loders Croklaan Group B.V. (BLC) to Koninklijke Bunge B.V. (KBBV). 

MIDF Research noted that the share sale comprising 1,800 shares that represented 10 per cent stake in BLC was completed for US$84 million plus €19.72 million (RM376.3 million and RM89.9 million respectively).

With 10 per cent share sale, IOI Corp’s interest on BLC is now reduced to 20 per cent. 

Additionally, MIDF Research said the estimated loss arising from the share sale is RM50 million of which mostly is fair value loss from derecognition of the terminated put and call options.

“If 80 per cent of the RM466 million latest proceeds to be used for debt settlement purpose, we could see the group’s gearing improving down to 25.6 per cent onwards versus 29.2 per cent in the nine month financial year 2022 (9MFY2022),” it said in its research note today. 

MIDF Research continue like IOICorp premised on its integrated business where the manufacturing segment which makes up 35 per cent of group profit would help cushion any pullback of average selling price (ASP) for crude palm oil (CPO), hence, reducing earnings volatility. 

“We are maintaining our 'buy' call with an unchanged target price (TP) of RM6.00 per share,” it said. 

To recap, IOI Corp acquired the entire business of BLC from Unilever Plc and Unilever NV for RM814 million in 2002, and subsequently in September 2017, IOI Corp entered into a definitive share purchase agreement with KBBV to dispose of 70 per cent stake in BLC and its related businesses to KBBV for RM3.79 billion.

Another research firm, Hong Leong Investment Bank (HLIB) noted that the share sale would result in a loss of about RM50 million, which is non-core in nature, as the bulk of the disposal loss is related to fair value loss arising from de-recognition of the terminated put and call options. 

“Disposal loss aside, the equity interest reduction in Loders (BLC) will result in its earnings contribution to IOI Ccorp reducing by about RM50 million per annum, based on our estimates, which is insignificant given IOI Corp’s large earnings base. 

HLIB maintains its 'buy' call with an unchanged TP of RM4.36. 

Meanwhile, Maybank Investment Bank (IB) which also echoed the view on the loss of RM50 million by IOI Corp, said post disposal IOI Corp still own 20 per cent of BLC. 

“As such, we believe IOI Corp will continue to equity account its 20 per cent-equity stake in BLC in the future. 

“Recall that BLC operates downstream specialty oils and fats operations in the European Union (EU), North America and Asia," said Maybank IB. 

For 9MFY2022, IOI Corp recorded a share of loss of RM17 million for its 30 per cent-equity stake in BLC which included an impairment loss of RM55 million. 

"Adjusted for impairment, the estimated annualised FY2022 30 per cent-share of core profit after taxation and minority interests of BLC was around RM51 million," it said.


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