CEO Lee is confident that IOI Corp is on track to improve its yields in the longer term.
PUTRAJAYA: IOI Corp Bhd
expects minimal overall impact on its bottom line following the government’s move to hike minimum wages and impose mandatory foreign worker contribution to the Employees Provident Fund (EPF).
IOI Corp managing director and chief executive officer Datuk Lee Yeow Chor anticipates the impact from the measures to be less than 1.5% of its net profit for its financial year ending June 30, 2025 (FY25).
“All these will increase our costs slightly while there is a slight reduction to the windfall profit tax. So the overall effect in the remainder of this FY25 is less than 1.5% to our net profit.
“And this assumes net profit is constant, and since crude palm oil prices have increased, so this variable (net profit) changes as well,” Lee said at its AGM yesterday.
Under the recently unveiled Budget 2025, the government has revised the minimum wage to RM1,700 from RM1,500, together with the introduction of mandatory foreign worker contribution to the EPF.
Lee noted the windfall profit levy threshold increase of only RM150 is disappointing for the industry.
“But production costs have increased more than this, so we are a bit disappointed that the threshold is only raised marginally. The association has been asking for a much higher increase in the threshold by RM500 to RM1,000,” he said.
The levy threshold on the production of fresh fruit bunches, which is at RM3,000 for Peninsular Malaysia and RM3,500 for Sabah and Sarawak, would be raised to RM3,150 and RM3,650, respectively.
Lee pointed out that it saw higher productivity of its estate workers given the increasing use of plantation technology or mechanisation.
“Before this we needed one worker for every 6.5 ha and now it is 8.5 ha per personnel. So one worker can do two more ha. This may improve further for West Malaysia by up to 10%.
“Mechanisation will still require workers to drive the trucks while farm automation requires mobile devices to check the crops – for these we will employ locals. So there is a reduction in manual labour,” he explained.
Meanwhile, Lee is confident that IOI Corp is on track to improve its yields in the longer term as it is in the process of enhancing the age profile of its plantations.
The oil palm planter continues to prioritise replanting its existing trees to improve crop outcomes with better seedlings.
It has replanted about 48,228 ha since FY19 to improve its estates’ overall average age profile.
In FY24, the planter said some 11,261 ha of young palms were brought into maturity, while 8,631 ha of old palms were replanted.
But Lee said yield outcomes, which are still below expectations, have further room for improvement in the longer term.
“We are about 15% below our desired target. Unfortunately, we cannot help the biological age of the palm (fruit) – a person who is 70 years old is different from someone who’s in their 40’s for example.
“More importantly, how the young replanted plants are performing after they are productive – and this looks to be very promising.
“Normally when the trees are young, it will yield less.
“After some three years of replanting, it will bear fruit and in the fourth year of replanting – in the past it was 12 tonnes per ha but now in the third year we are already achieving this figure.
“And in the following fourth year, we can probably achieve 16 or 17 tonne per ha,” he added.
Its replanting programme involved the use of its elite clonal palms and high-yielding third-generation hybrid palm seedlings to increase oil palm yields.
“We are confident that in five years, the new materials we use to replant will give us very good oil yield outcomes.
“For example in one of the palm oil mills in Sabah, where the supply estates have replanted 70% to 80%, we are able to achieve a consistent oil extraction rate (OER) of more than 25%,” Lee said.
This compares with the national OER for palm estates at some 18%.
Apart from that, Lee said it hopes to venture into the renewable energy sector via a solar power project, which will be developed through a consortium comprising three or four partners.
“We’ve allocated land in Johor specifically for this solar power plant, to be developed through the consortium. It’s still early, so we can’t disclose too much yet,” he said.
Lee said IOI Corp hopes to secure regulatory approvals for the project by the first quarter of 2025.
