IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng is positive on crude palm oil (CPO) prices and believes that the worst of the plantation cycle is over.
He foresees CPO prices hitting RM2,900 by the year-end before breaching the RM3,000 level, driven by falling inventory levels and the renewed B10 biodiesel programme, which would pick up pace by the end of 2013.
“Furthermore, the price discount between CPO prices and soybean oil is currently at about US$300 (RM930), which is at one of its highest levels,” Lee noted.
The CPO price now is at around RM2,430 per tonne.
“I believe the CPO prices would be going up. So far, I have not been wrong before. Let us see this year,” he said.
He added that inventories were coming down steadily.
“We are now also entering the low-crop period. Give that another one to two months, then you'd see things getting better. The fact is that palm oil is a vegetable oil which is a good oil. It contains no trans fatty acid,” Lee said.
Lee, Malaysia's sixth wealthiest man, never imagined he would attain what he has today. “All I wanted to do was to become a school teacher and ride a Vespa!”
Meanwhile, the Government is now pushing the B10 biodiesel programme to be implemented nationwide by June 2014. This is part of its plan to reduce high palm oil stocks and support the CPO price. As at December 2012, palm oil stocks were are at a record high of 2.63 million tonnes.
The B10 palm oil-based biodiesel comprising 10% palm oil and 90% petroleum diesel was launched in early February this year.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said the Government had allocated a RM300mil grant, of which RM80mil had been disbursed to oil companies and biodiesel producers to set up the infrastructure, ranging from blending facilities and tanks to oil pumps.
Dompok said B10 would take away one million tonnes a year from the national stockpile of 2.6 million tonnes.
Going back to Lee, he said IOI was aiming to go back to an oil yield of six tonnes per hectare from 4.9 as of 2012. Its oil yield has been on a downtrend in the last five years.
“We do face some labour shortage issues and there are difficulties in looking for good estate managers. We don't mind paying higher rates for local workers. We can pay piece rates.
“Plantation is all about productivity. A good estate manager and an inefficient estate manager would make a big difference in determining the profits of an estate,” Lee said.
As at June 30, 2012, IOI's total planted area stood at 158,881ha, from 158,174ha in 2011. Approximately 99% of the estates' planted area sapns over 82 estates.
About 65% of the group's oil palm plantation holdings are in Sabah and Sarawak, 29% in Peninsular Malaysia and the remaining 6% in Indonesia.
Lee considers himself a property man just as much as a planter. This is obvious not just from IOI's size, but also its property margins.
While IOI Properties was privatised in 2009, the last three financial years have seen the company's revenue base closing in on the RM1bil mark.
For the year ended June 30, 2012, the company posted a revenue of RM843mil, a 13% decrease from the RM971mil in the previous year. Operating profit dropped 12% to RM451.13mil.
When it was a listed entity, IOI Properties was one of the most profitable developers around.
IOI has property developments in Xiamen (China), Singapore and Malaysia, with the bulk of its gross development value in Singapore.
Lee said Xiamen was an exciting market which held lots of potential.
IOI plans to embark on a RM2bil property development in Xiamen this year. This would be a mixed development comprising a shopping mall, a hotel and office space, condominiums and villas.
Lee is just as excited about Singapore and Johor. IOI recently launched its properties in Clementi Avenue Singapore, which he said was very well received. The average selling price was S$1,500 (RM3,736.49) per sq ft.
Last year, IOI tendered for the parcel of land in Jalan Lempeng, off Clementi Avenue 6 in Singapore, for S$408mil (RM995mil). It is within walking distance of the Clementi Mass Rapid Transit station and the Clementi bus interchange.
“Property is all about stamina and location. The measures taken by the Singaporean government will really drive down property prices, which may not be good for the long term,” Lee said.
He is equally optimistic on property in the Iskandar Development region, and has been looking to buy pockets of land around the area. At present, IOI has some 1,416ha for property development spread out in Johor.
“Undeniably, the Iskandar region is developing. Property prices in Singapore are still extremely high. The infrastructure is now coming up in Johor.
“There is now a good relationship between the governments of Singapore and Malaysia. While you need to be extremely careful with location, I believe Johor holds a lot of potential,” he said.
On another note, IOI's new mall, IOI City Mall in Putrajaya, is on track to be completed by end-2014.
Lee said it had secured Tesco and Parkson as anchor tenants, and some 60% of the entire 1.4 million lettable area had been taken up. The rental per square feet would be going for approximately RM10 to RM12.