MARKET DEVELOPMENT
Further Weakness Ahead for IOI Corp Expected
Further Weakness Ahead for IOI Corp Expected
18/02/2015 (Borneo Post) - IOI Corporation Bhd (IOI Corp) recorded an exceptional loss of RM449.6 million in the first half of financial year 2015 (1HFY15), comprising an unrealised translation loss on forex debt of RM361.9 million, fair value gain on derivatives of RM36.1 million and unrealised fair value loss on foreign currency forward exchange contracts in the manufacturing division of RM123.8 million.
RHB Research Institute Sdn Bhd (RHB Research) observed its core net profit was down by 31 per cent year on year (y-o-y) on a 15 per cent dip in revenue, caused by the absence of contributions from the property division, and weaker manufacturing contributions as EBIT margins fell to 5.8 per cent.
“This was offset slightly by higher plantation contributions arising from higher crude palm oil (CPO) output driven by contributions from the Unico-Desa acquisition which was completed in Feb 2014 and higher palm kernel prices, offset slightly by lower CPO prices,” it said in a note yesterday.
The firm forewarned investors to watch out for realised forex losses in the third quarter of 2015 (3QFY15).
“Going forward, we highlight that while forex losses so far in 1HFY15 were unrealised, we could see some realised forex losses in 3QFY15’s results as IOI Corp repaid some US$150 million of its debt in Jan 2015, and is due to repay another US$500 million in March.
“While there may not be significant forex losses for its US$150 million repayment as 85 per cent of this exposure has been hedged earlier, we understand the US$500 million loan has not been
hedged.”
The firm maintained a target price at RM4.40 per share for IOI Corp, adding that ss valuations remain fair at current levels with no significant share price catalysts in sight, it maintained its neutral recommendation.
Maybank Investment Bank Bhd (Maybank IB Research) said the outlook for the second half of its financial year remains challenging.
“OUtlook remains challenging with no downstream margin recovery in sight and fresh fruit bunch output growth slowing to low single digit or potentially contracting,” it said in a separate note. “2HFY15 core earnings outlook is flattish at best but we cut FY6/15 headline profit after tax and minority interest by 32 per cent to reflect its unrealised forex losses.
Maybank IB Research said forex losses may worsen in 3QFY6/15 as the ringgit continues to weaken in 2015.
“With its high net gearing at 80 per cent as at December 31, 2014, there is no room for capital management,” it said. “And IOI is still at risk of dropping off the Shariah Indices this end-May 2015
RHB Research Institute Sdn Bhd (RHB Research) observed its core net profit was down by 31 per cent year on year (y-o-y) on a 15 per cent dip in revenue, caused by the absence of contributions from the property division, and weaker manufacturing contributions as EBIT margins fell to 5.8 per cent.
“This was offset slightly by higher plantation contributions arising from higher crude palm oil (CPO) output driven by contributions from the Unico-Desa acquisition which was completed in Feb 2014 and higher palm kernel prices, offset slightly by lower CPO prices,” it said in a note yesterday.
The firm forewarned investors to watch out for realised forex losses in the third quarter of 2015 (3QFY15).
“Going forward, we highlight that while forex losses so far in 1HFY15 were unrealised, we could see some realised forex losses in 3QFY15’s results as IOI Corp repaid some US$150 million of its debt in Jan 2015, and is due to repay another US$500 million in March.
“While there may not be significant forex losses for its US$150 million repayment as 85 per cent of this exposure has been hedged earlier, we understand the US$500 million loan has not been
hedged.”
The firm maintained a target price at RM4.40 per share for IOI Corp, adding that ss valuations remain fair at current levels with no significant share price catalysts in sight, it maintained its neutral recommendation.
Maybank Investment Bank Bhd (Maybank IB Research) said the outlook for the second half of its financial year remains challenging.
“OUtlook remains challenging with no downstream margin recovery in sight and fresh fruit bunch output growth slowing to low single digit or potentially contracting,” it said in a separate note. “2HFY15 core earnings outlook is flattish at best but we cut FY6/15 headline profit after tax and minority interest by 32 per cent to reflect its unrealised forex losses.
Maybank IB Research said forex losses may worsen in 3QFY6/15 as the ringgit continues to weaken in 2015.
“With its high net gearing at 80 per cent as at December 31, 2014, there is no room for capital management,” it said. “And IOI is still at risk of dropping off the Shariah Indices this end-May 2015