KUCHING: IOI Corporation Bhd’s (IOI) withdrawal of the Roundtable on Sustainable Palm Oil (RSPO) suspension challenge left analysts positively surprised by the news.
In a filing on Bursa Malaysia, IOI announced that the group has decided to withdraw the challenge proceeding against the RSPO Board’s suspension decision in the Zurich District Court of Switzerland.
“The withdrawal of the challenge proceeding will be formalised during a concillatory hearing before the Justice of Peace on June 14, 2016,” the group said.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) recalled that IOI’s RSPO membership was suspended on March 29. Subsequently, IOI filed a challenge with Zurich district court of Switzerland on the RSPO’s board decision on May 9.
IOI also noted in the announcement that since the filing of the challenge proceeding, the group has engaged with many of its stakeholders such as customers, non governmental organisations (NGOs) and RSPO to resolve this matter.
“We are glad to know that IOI has submitted to RSPO on May 30, 2016 a Memorandum on its sustainability policy initiatives. In the Memorandum, IOI has volunteered to adopt the more stringent RSPO Next certification system.
“If RSPO is satisfied with the Memorandum as well as the actions that IOI has taken, it is possible that the membership suspension on IOI would be lifted,” the research arm said.
MIDF Research was positively surprised by the news, believing that the IOI suspension may be lifted in less than a year given the group’s proactive stance.
The company had also abandoned the court process in which the research arm believed will be more complicated and consume more time.
Overall, MIDF Research has upgraded its recommendation on the stock to ‘buy’.
MIDF Research has increased its forward price earnings (PE) valuation to 23.1-fold (mean valuation) from 20.4-fold as the research arm believed that the time line for the RSPO suspension to be lifted has declined significantly post the withdrawal of the challenge in court.
Hence, the research arm’s target price has been increased to RM4.82 per shar from RM4.25 per share previously.