IOI CORPORATION BERHAD 1.

0 INTRODUCTION IOI Corporation Berhad is one of Malaysia's biggest conglomerates that started off from industrial gas manufacturing. IOI's major businesses are oil palm plantations and resourcebased manufacturing. It is also one of the largest property development and investments groups in Malaysia. As of December 2009, IOI Corporation Berhad is in the list of the Top 10 market capitalization in Bursa Malaysia with a market capitalization of RM33.9 million. IOI Corporation Berhad owns 100% of Loders Croklaan Group, 71% of IOI Properties Berhad and 100% of Oloechemical Industries Berhad. 2.0 IOI CORPORATION BERHAD'S BACKGROUND IOI Corporation Berhad was started on 31 October, 1969, known as Industrial Oxygen Incorporated Sdn. Bhd. IOI started off its business from industrial gas manufacturing and later on, ventured into property development in 1982 and followed by oil palm plantations in 1985. The group is currently lead by Tan Sri Lee Shin Cheng, the executive chairman. IOI is listed in the main board of the Bursa Malaysia. IOI Corporation Berhad's core business activities are Plantation, Manufacturing of

oleochemicals and specialty fats, and Property. Plantation is the biggest income generator for the corporation. As at June 2009, about 65% of the profits come from its oil palm plantations. The corporation has 12 palm oil mills with total milling capacity of 4.1 million tonnes per year at is 80 estates throughout Malaysia. Under the corporation's manufacturing of oleochemicals and specialty fats, IOI is the largest vegetable oil based oleochemical manufacturer in Asia. Products derived from oleochemicals are more readily biodegradable and hence do not pose a threat to the environment. This is because oleochemicals are derived from renewable resources, as compared to petrochemicals which are obtained from exchaustible or non-renewable petroleum. Besides oleochemicals, IOI's business specialty fats businesses are operated under Loders Croklaan. Loders Croklaan's customer base includes global food giants such as Unilever, Nestle and Cadbury. Specialty fats provide special function in food application and nutrition application. These fats produced are use in pastries, confectionery, snack foods and ready-to-eat meals.

Under the Property activity, IOI's property business can be categorized into real estate development and property investment holding branching out to leisure and hospitality. IOI owns 2 two resort hotels, namely Marriot Putrajaya Hotel and Palm Garden Hotel in Putrajaya. The property segment contributes around 18% of the group's earnings. In our assignment, we will focus more on the Plantation activities as this is the biggest income generator, which eventually affects the corporation more in any other ways. 2.1 IOI CORPORATION BERHAD'S RATING IOI Corporation Berhad is rated by Moody' Rating with a rate of A3. IOI's A3 reflects (i) continued favourable outlook for palm oil demand, (ii) IOI's position as a global top tier palm oil producer and its efficient operations, (iii) continued profit margin improvements in its downstream business, (iv) IOI's solid balance sheet liquidity as well as its strong access to capital and bank markets, and (v) management's good track record in managing the palm oil business throughout the cycle. 2.2 BOARD OF DIRECTORS BOARD OF DIRECTORS OF IOI CORPORATION BERHAD 2.3 GROUP STRUCTURE OF IOI CORPORATION BERHAD Plantation Oil Palm Cultivation and Milling Commodity Trading Resource-Based Manufacturing Refinery and Trading Refinery and Oleo-Chemicals Refinery, Specialty Fats and Lipid Nutrition Property

 Real Estate Development and Investment Hotel and Resort Development 3.0 FUNDAMENTAL ANALYSIS 3.1 Market Analysis Market analysis is important for us to determine the company performance. As we know, the macroeconomic is the environment in which all firms operate and that have link with market analysis. There are some macroeconomic factors that influence IOI Corporation Berhad's performance such as the interest rate, consumer sentiment, economic crisis and also inflation and Gross Domestic Product. Interest Rate A major macroeconomic factor to consider in one's market analysis is interest rate. In March 2005, the shares price of IOI Corporation Berhad rose after the US dollar bond issue was oversubscribed more than seven times. From mid-2007, the graph indicates that have decline curve because of higher interest rate. It becomes more expensive for banks to borrow money from federal and directly affect the firm business and individual. An increase in interest rates will make consumer spend less, make saving and therefore decrease the company profits. And therefore, took a dramatic turn for the worse in the second half of 2008. Similarly, increases in interest rates tend to be bad news for the stock market declines. Consumer Sentiment Besides that, consumer sentiment is also one of the factors that affect the company growth. Similar to consumer confidence, consumer sentiment is directly related to consumer spending. The pattern in consumer attitudes has the foremost influence on both the stock and bond markets. Consumer sentiment figure impacts the stock market positively when sentiment is up, and negatively when sentiment is down. In June 2005, the announcement of IOI performing above market expectation was gave rise to the IOI Corporation Berhad stock price. It is because the new construction, expansion and acquisition of palm oil processing give the customer confidence to buy the stock and bond of company. In 2007, the credit crunch and spiking oil prices drove down consumer sentiment to record lows and gradually rise up but drop down

stormy in 2008. However, as the index began to increase again in 2009 it helped investors to confirm that the economy is easing out of recession. Economic Crisis One obvious factor that affect IOI Company's market price is the economic crisis. Economic crisis is also indirectly affected by natural disaster that occurred in the ending of 2004, tsunami disaster attack Indonesia which is the world second largest producer of oil palm after Malaysia. The occurrence of tsunami have make IOI Corporation Berhad stand to benefit because company does not have any plantations in Indonesia and this might let the crude oil palm prices receive an immediate upward impact in the January of 2005. The global economic crisis was triggered by the financial crisis, which began in mid-2007 and took a dramatic turn for the worse in the second half of 2008. The effects of persistent high crude oil prices at record levels coupled with the sluggish US economy due to the burgeoning banking credit crisis and housing market deterioration has weighed down on global economic growth. On the other hand, the surging tide of food prices, such as corn, wheat and palm oil, continues to add to the already worsening global inflationary pressure. Economic crisis continues till the first two quarter of the year 2009. Major commodities including palm oil experienced sharp declines followed by substantial fluctuations in prices in line with the major commodities bust cycle worsen by the wild swings in demand and supply conditions. Activities in the domestic property market also slowed down in tandem with the decline in overall economic growth. However, IOI Corporation Bhd expects in company to improve in the year 2010 as the property market in Singapore has shown encouraging signs of revival lately. Inflation Another macroeconomic factor is inflation, where the rate at which the general level of prices is rising. High rates of inflation often are dues to the overheated economies. In IOI Corporation Berhad, inflation is falling rapidly in response to economic contraction and the collapse of commodity prices since mid-2008, following from the effect of the economic crises in mid-2008. When inflation goes up, there is a decline in the purchasing power of money. The precise role of other factors in causing the initial economic downturn, including the impact of high oil prices and falling asset values have damaged the balance sheets of banks and other financial institutions, forcing them to rein in lending and tighten the terms of new loans, including raising interest rates sharply. These make it much harder and more expensive for businesses of all types to borrow

money on a short-term or long-term basis. The credit crunch is both causing and feeding on the sharp downturn in economic growth, as the value of physical and financial assets spiral lower, liquidity and credit diminishes and economic activity contracts. Therefore, firm earning profit lower and lead to company market price decline. Gross Domestic Product Gross Domestic Product (GDP) is the measure of the economy's total production of goods and services. Rapidly growing GDP indicates an expanding economy with ample opportunity for a firm to increase sales. In the IOI Corporation Berhad, the growth of GDP affects more on the Property segment. With strong GDP from 5.9% in year 2006 to 6.3% in 2007, the Malaysia Property Market improved despite having to operate under challenging environment amidst rising cost. The property market activities registered favourable increase in volume and value of transaction. The turnaround can partly attributed to Malaysian Government's initiative to enhance the robustness of the property market by introducing various favourable policies measures, such as RPGT exemption, 50% stamp duty rebate for transactions of low and medium cost properties and withdrawal from EPF for monthly housing loans repayment. In line with the overall Malaysia Property Market improvement, the Group sold a total of 1,934 units of properties for a total sales value of RM696.7 million, an increase over previous year's 1,529 units at a total sales value of RM683.5 million. 3.2 Industry Analysis Industry analysis is important for the same reason that macroeconomic is. Industry analysis factors are such as low threat of goods, low bargain power of supplier, high bargain of buyers, threat of new entries and rivalry between existing competitors. Low threat of substitute produces or services The major product produces by IOI plantation is palm oil which is crude palm oil which is vegetable oil and fats. There are a lot of substitute products in the market such as olive oil, soybean oil, canola oil, pumpkin seed oil, corn oil, sunflower oil, and so on. Although there are about 17 types of edible oils and fats traded globally, palm oil remain the cheapest, is going for US$300 less than soya oil, according to Credit Suisse. The great rival of soybean oil in China is palm oil. This is because China need to consider the huge amount of transportation costs and time, so palm oil producers in Malaysia such as IOI Corporation is the best choice for China.

Because of crude palm oil consist of trans-fatty acid free, genetic modification free, pure and natural, and naturally versatile, palm oil become healthier' oil of choice and alternative substitute. In US, the new labelling rule on the food containing trans-fatty acids(TFAs) which can be obtain in crude palm oil have been affect the corporation which produce crude palm oil. The IOI Corporation have been affected because food manufacturers in the US are looking for vegetable oils to replace soya bean oil and rapeseed and crude palm oil appears to be a suitable substitute. The financial report of IOI Corporation has been influenced as the US food manufacturing import the crude palm oil. Besides the production crude palm oil, the oleochemical is also the source of income for the IOI Corporation. Palm oil also is a substitute product for coconut oil when producing ice-cream. Coconut oil contains unsaturated fats which is lauric acid. Moreover, palm oil contain highly saturated, high-melting part of palm oil removed thus making them highly suitable for use in ice-cream. Oleochemical act as a direct and indirect substitute of petrochemicals in many applications. Oleochemicals are produced from renewable resources as compared to petrochemicals which are obtained from non-renewable petroleum which may harm the environment. In addition, products which derived from oleochemicals are more readily biodegradable which are more environmentally friendly. Low bargain power of supplier The main raw material needed in the plantation industry is fertilizer. There are large numbers of fertilizer suppliers in the market which lead to low switching cost. However, IOI Plantation Berhad gets its fertilizer suppliers from the palm biomass which produced from pruned fronds, emptied fruit bunches and old palm stems and mix with treated palm oil mill effluent are recycles back to the soil as natural fertilizers. This help IOI Corporation Berhad reduces the budget to buy the huge amount of fertilizers which may cause the soil erosion or pollution to the environment besides to protect the environment from pollution and preserve or rehabilitate biodiversity and ecology. High bargain power of buyers The main sale component of IOI Corporation Berhad is crude palm oil. There are large numbers of buyers in the market. They are top five importers of Malaysia palm oil which are China, Europe, Pakistan, India and US which account for slightly more than 65% of the total export. Because of the widely use of crude palm oil in US manufacturing, IOI corporation plan to expand the sales to Europe. On 5th June 2006, IOI Corporation Berhad talked a long term

contract with Dutch_based BioX Group BV to purchase 80,000 tonnes of palm oil products. BioX is the largest supplier of sustainable biofuels for the renewable energy sector in Europe. And in 2006, BioX signed a 10-years supply agreement with IOI Corporation. BioX also deal with IOI includes the construction of a biofuel powerplant at IOI's refinery in Rotterdam. China had imported 230,000 tons of palm oil products from IOI Corporation Berhad on 2007. It is the biggest importer of palm oil. The huge imported palm oil products may increase the net earnings of IOI Corporation from RM0.83 billions to RM1.48 billions which is increases about 79% FY2007.Loders Croklaan is a subsidiary of IOI Corporation Berhad, Malaysia which is global producer of oil, fats and nutritional ingredients. Loders Croklaan's important market is Europe which is the world's biggest consumer of specialty fats. This specialty fats use in chocolate manufacturing in the form of cocoa butter equivalents, cocoa butter replacers and cocoa butter substitutes. Moreover, Eastern Europe, US, Canada, Central and Latin America, Egypt, the Middle East countries, China, Japan, Korea, India, and South East Asia also markets for Loders Croklaan. Loders Croklaan's customer bases include global food giants like Unilever, Nestle, Cadbury and Kraft. It directly influenced the financial statement of IOI Corporation Berhad because of Loders Croklaan. Furthermore, Loders Croklaan also produce the specialty fats which have special function in food application and branches out to health supplement applications such as pastries, confectionery, snack foods, and ready-to-eat meals. Threat of Entry The threat of new entry is the possibility of new firms that will enter the industry. New entrants bring a desire to gain market share and often have significant resources. Their presence may force prices down and put pressure on profits. Even if a firm has not yet entered an industry, the potential for it to do so place pressure on prices, since high prices and profit margins will encourage entry by new competitors. Thus, barriers to entry can be a key determinant of industry profitability. Barriers to entry are the costs and legal requirements needed to enter a market. These barriers are able to protect the companies that are already in business by being a hurdle to those trying to enter the market. In addition, a new competitor may inspire established companies to react with tactics to deter entry, such as lowering prices or forming partnerships. The chance of reaction is high in markets where firms have a history of retaliation, excess cash, are committed to the industry or the industry has slow growth.

The threat of new entrants is greatest when processes are not protected by regulations or patents, customers have little brand loyalty, start-up costs are low for new businesses entering the industry, the products provided are not unique, switching costs are low, the production process is easily learned, access to inputs is easy, access to customers is easy as well as economies of scale are minimal. From IOI Corporation Berhad's income statement, we can see that IOI Corporation Berhad net profit is dropping from year 2005 to 2006 as well as from year 2008 to 2009. The factor that affects IOI net profit in year 2006 is that Kulim (M) Bhd, one of the plantation companies in Malaysia has been listed in Bursa Saham in year 2005. Rivalry between existing competitors Rivalry among competitors is often the strongest of the five competitive forces, but can vary widely among industries. If the competitive force is weak, companies may be able to raise prices, provide fewer products for the price, and earn more profits. If competition is intense, it may be necessary to enhance product offerings to keep customers, and prices may fall below break-even levels. Rivalries can occur on various playing fields. In some industries, rivalries are centered on price competition-especially companies that sell commodities such as paper, gasoline, or plywood. In other industries, competition may be about offering customers the most attractive combination of performance features, introducing new products, offering more after-sale services or warranties, or creating a stronger brand image than competitors. In some cases the presence of more rivals can actually be a positive-for instance in a shopping area, where attracting customers may hinge on having enough stores and attractions to make it a worthwhile stop. However, the presence of rivalries also has drawback such as it will cause more price competition and lower profit margin to be happen in the company as competitors seek to expand their share of the market. For instance, the major IOI Corporation Bhd's comparable rivals are Felda Group, Sime Darby Berhad, Kuala Lumpur Kepong Berhad and United Plantations Berhad. When one of the competitors is having some project such as Sime Darby Plantation Sdn Bhd signed a Memorandum of Understanding with The State Trading Corporation of India Ltd (STC), India's premier international trading house, with a view to establish a joint-venture in edible oils business in India in the year 2008 will affect IOI

Corporation Berhad's profit. This is because the MoU and the future partnership that Sime Darby Plantation Berhad signed with STC will establish a more strategic presence in the large and fast growing market for edible oils in India and simultaneously increase Sime Darby Plantation's profitability. And of course,this will affect IOI Corporatin Berhad's Profit as well. 3.3 Company Analysis FINANCIAL ANALYSIS IOI CORPORATION Liquidity Ratio Liquidity Ratio is to provide information about firm's liquidity and to evaluate the company's ability to pay its bills over the short run without undue stress. These ratios are particularly interesting to short-term creditors such as banks and suppliers. 3.31 Current Ratio Current ratio is an indication of a company's ability to meet short-term debt obligations. The higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. The unit of measurement is either dollars or times. Based on the chart line above, there is an increment of current ratio from year 2005(4.59 times) to 2007(5.05 times) and the ratio has dropped by 1.95 times in year 2008 and rise up again to 4.70 times in 2009. The decrease of current ratio in 2008 occurs because of the financial crisis that happens in year 2008. 3.32 Return on Assets (ROA) ROA is an important ratio for companies deciding how profitable a company is relative to its total asset. The ROA ratio explained how well management is employing the company's total assets to make a profit. The more efficient management is in utilizing its asset base, the higher the return. Refer to the graph that at 2005, return in asset shows at 8.6% and for 2006 decrease to become 8.2%. However, it is increasing sharply to12% in 2007 and 14% in 2008. The sharply increases is because of the asset in the IOI Corporation Berhad is being use to make high profit

along 2007. According to the Asset Magazine's annual Corporate Governance Ranking 2007, IOI has been name as one of the best companies in Malaysia. The increases also because of the important markets for palm oil and its derivative products because of the global growth rate was boosted by strong growth from leading emerging economies. In 2009, the ROA decrease to 6.6%. 3.33 Return on Equity (ROE) Return on equity (ROE) is referred to as Stockholder's return on investment, it tells the rate that shareholders are earning on their shares. Because benefiting shareholders is our goal, ROE is, in an accounting sense, the true bottom-line measure performance. At year 2005, ROE show that had 18.5% and decrease to 14% in 2006 and rise again to 19% in 2007 and 26% in 2008.However, it declines sharply in 2009 to 12%. This is due to the decrease in EBIT because of the lower contribution mainly because of the realized foreign currency losses on derivative contracts, customer defaults, lower sale volume and margins as a result of unfavourable conditions during the mid-2008. 3.34 Total Asset Turnover This ratio is useful to determine how efficiently a firm is using its assets in generating sales. Total asset turnover equal to sales divided by total assets. From the above graph, the total asset turnover of IOI Corporation Berhad in year 2005 is 0.578 times and increase 0.012 times to 0.59 times in year 2006.The total asset turnover continually increase 0.065 times to 0.655 times in 2007 and 0.85 times in 2008. The total asset turnover continues increase and become 0.91 times in 2009. For companies in the retail industry, a company would expect a high asset turnover ratio - mainly because of cutthroat and competitive pricing. 4.0 BETA OF THE COMPANY'S STOCK AND MARKET RETURN IOI CORPORATION BHD KLCI ANNUALISE RETURN 0.098507724

0.028436784 ANNUALISE VAR 0.021182728 0.004553274 VOLITALITY 0.145542872 0.067477949 CORRELATION 0.61790996 COVAR 0.006068453 BETA 1.332767105 CAPM 3.12443% beta 1.332767105 5.0 INTRINSIC VALUE OF THE COMPANY'S COMMON STOCK 2009 Expected EPS

Relative Valuation 2009 Expected Price in 2010 Price Value Earnings per share 0.1662 0.182802315 20.75812274 3.794632892 3.679822432 Cash flow 2459382 2705058.502 1.40E-06 3.79E+00 3.68E+00 Book value 1.36 1.495855285 2.536764706 3.794632893

3.679822433 Sales per share 2.394 2.633145259 1.441102757 3.794632893 3.679822433 6.0 COMPARISON OF MARKET COMMON STOCK PRICE AND CURRENT MARKET PRICE The best way to determine whether the stock is overvalued, undervalued or correctly priced is to compare the intrinsic value of share of stock to its market price. The intrinsic value is the present value of a firm's expected future net cash flow discounted by the required rate of return. When the intrinsic value of the stock exceeds the market price, the stock is considered undervalued and good investment and vice verse. For the IOI Corporation Bhd, the intrinsic value is RM3.68, at the current price of RM5.38, the stock is overvalued compare to intrinsic value, and this would indicate a sell' opportunity. It is a bad investment. 7.0 APPENDIX IOI Group. Retrieved February 28, 2010 from http://en.wikipedia.org/wiki/IOI_Group IOI Group. Retrieved February 28, 2010 from http://www.ioigroup.com/ Industry Analysis: The Five Forces. Retrieved March 12, 2010 from

www.ces.purdue.edu/extmedia/ec/ec-722.pdf - United States Why we don't have more world-class firms in Malaysia. Retrieved February 28, 2010 from biz.thestar.com.my/business/news

Porters Five Forces - Management Tools and Models. Retrieved March 12, 2010 from www.themanager.org/Models/p5f.htm Sime Darby Plantations Signs MoU with India's Premier Trading House. Retrieved February 28, 2010 House.aspx The palm-oil-biodiesel nexus. Retrieved February 09, 2010, from from

plantation.simedarby.com/Sime_Darby_Plantation_Signs_MoU_With_India's_Premier_Trading_

http://www.grain.org/seedling/?id=486 Suppliers of Crude Palm Oil(CPO) from Malaysia. Retrieved February 09, 2010, from http://www.etawau.com/OilPalm/PalmOilSuppliersMalaysia.htm Suppliers and Exporters - The Malaysian Palm Oil Association. Retrieved February 21, 2010 from http://www.etawau.com/OilPalm/PalmOilSuppliersMalaysia.htm Global Palm Oil Market To Exceed 100M Tonnes By 2015, According To New Report By Global Industry Analysts, Inc. Retrieved March 3, 2010, from http://www.foodonline.com/article.mvc/Global-Palm-Oil-Market-To-Exceed-100M-0001 Edible oils and fats international conference. Retrieved March 03, 2010, from

http://www.entrepreneur.com/tradejournals/article/175875679.html Malaysian palm oil industry puts sustainability in the spotlight Rhett Butler. Retrieved March 03, 2010 from http://news.mongabay.com/2008/0417-palm_oil_sustainability.html Lipid Nutrition Becomes Independent Entity. Retrieved March 03, 2010 from

http://www.ioigroup.com/Newsroom/newsroom.cfm?id=CDF03EB7-13D3-0253BA33458DBA2AE4F9 IOI likely to gain from higher US palm oil use. Retrieved March 07, 2010 from http://www.ioigroup.com/Newsroom/newsroom.cfm?id=8F83334A-43AF-49F7A074FFAC24FA15F0 IOI Corporation Substitute Company Loders Croklaan. Retrieved March 07, 2010 from http://asia.croklaan.com/TheCompany/LodersCroklaan/

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