IOI Corp Bhd’s embroilment in a forced labour allegation will negatively impact sentiment on the integrated palm oil player due to concerns that it could be penalised for the controversy through ESG (environmental, social and governance) ratings or the issuance of a Withhold Release Order (WRO) by the US Customs and Border Protection (CBP).
This is despite the company appearing confident that it can defend itself against any forced labour allegations by being willing to engage with stakeholders, according to CGS-CIMB Research.
“We think these are positive attributes for IOI,” opined research head Ivy Ng Lee Fang in a company update. “However, it will take time before CBP makes any decision on this matter, thus the overhanging risk may dampen (IOI Corp’s) share price performance.”
To reflect its concerns, CGS-CIMB Research reiterated its “hold” rating on IOI Corp but trimmed its target price to RM3.97 (from RM4.41 previously) after applying a 10% discount to its sum-of-parts (SOP) evaluation to reflect current concern.
“The share price is partially supported by (share) buyback programmes,” added the research house.
Earlier, IOI Corp said it has taken note of the CBP’s letter to migrant worker rights specialist Andy Hall indicating that the CBP acknowledges the receipt of a petition providing information of alleged forced labour practices at IOI Corp’s operations in Malaysia.
In the letter dated May 26, CBP said it had determined that the information was sufficient to investigate the merits of the allegation. As of June 25, IOI Corp had not been contacted by CBP regarding an investigation.
Nevertheless, IOI Corp noted that it will take proactive step by contacting CBP to confirm the existence of an investigation and offer its cooperation and assistance.
In a statement, Hall confirmed that in early-2021, he petitioned CBP regarding his concerns over the presence of multiple International Labour Organization (ILO) indicators of forced labour at IOI’s operations as per alleged by IOI’s workers.
He claimed that he has engaged IOI directly on specific issues of concern relating to these risks in its operations and had several beneficial and constructive engagements on these issues.
He added these issues relate in particular, among other things, to payment of deposits by IOI Corp’s workers, the lack of sufficient recruitment fees and related costs reimbursement processes, and the need to ensure ethical and low-cost recruitment processes for foreign workers.
At 10.41am, IOI Corp was down 8 sen or 2.09% to RM3.74 with 345,000 shares traded, thus valuing the company at RM23.51 bil. – June 28, 2021
