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Chain Reaction Research: IOI Corporation – Customers and Investors want Sustainability

In Q1 2016, IOI Corporation’s (IOI:MK) stock price rose to a year-to-date high of MYR
5.00. In February 2016, Chain Reaction Research published a report warning that IOI’s
equity value might collapse given Chain Reaction Research’s forecast that the
Roundtable on Sustainable Palm Oil (RSPO) might suspend IOI shortly thereafter. In
March 2016 RSPO temporarily suspended IOI due to its clearing of forests in violation of
RSPO’s policy. As forecasted, by May 2016, IOI’s shares fell 18% to MYR 4.12 while IOI
lost 26 major corporate customers. Separately, IOI announced it would sue the RSPO of
which it is a voluntary member. Finally, by mid-May 2016, analysts’ negative
recommendations peaked and Moody’s reviewed IOI’s debt for a downgrade.

Appreciating these clear market signals, IOI changed its approach. On June 6th, 2016,
IOI withdrew its lawsuit against RSPO and announced it would focus on improving its
sustainability profile to achieve customers’ No Deforestation, No Peat, No Exploitation
(NDPE) commitments and zero-deforestation polices. In doing so, IOI announced it
would strive to achieve a more stringent RSPO Next certification by Q4 2016. Shortly
afterwards IOI’s equity price gained 6% reaching MYR 4.38 by July 11, 2016.

Key Findings

  • IOI stated in June 2016 it would implement RSPO Next certification by Q4 2016.
    Meanwhile, IOI needs to resolve its pending RSPO complaints.
  • 26 customers suspended contracts because of IOI’s RSPO noncompliance.
  • IOI’s RSPO suspension may drag on, further suppressing IOI’s equity value.
  • In response to IOI’s share price collapse because of the RSPO suspension, IOI
    conducted 10 share repurchase programs.
  • IOI experienced equity volatility five times between 2011 to 2015 due to landbank
    and RSPO concerns.
  • IOI’s forward PE and PB ratios are expected to be above peers.

Click here to download the report.

The Chain Reaction Research is a consortium effort of Aidenvironment, Climate Advisers and Profundo.

For more information, please contact Annemieke Beekmans.

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