MARKET DEVELOPMENT
CIMB Research Sees Stronger Earnings for IOI Corp
CIMB Research Sees Stronger Earnings for IOI Corp
18/11/2015 (The Star) - CIMB Equities Research said IOI Corporation Bhd 1QFY6/16 core net profit (excluding forex translation loss) accounted for 14% of its full-year forecast and 12% of consensus estimates.
“We consider the results to be broadly in line as we expect stronger earnings in future quarters due to higher crude palm oil (CPO) prices and some recovery of its derivatives losses. Reported net profit was below due to forex translation losses of RM854mil on its foreign debts due to the weaker ringgit,” it said on Tuesday.
CIMB Research said the 1QFY16 core net profit fell 41% on-year due mainly to lower plantation earnings and fair value losses on its derivative instruments.
Plantation earnings before interest and tax (EBIT) fell 9% on the back of lower average selling price (ASP) for CPO and palm kernel, while fresh fruit bunches (FFB) production was flat. Resource-based manufacturing EBIT grew 47% on-year due to improved performances from the oleochemicals and refining margins. However, these were offset by fair value losses on derivatives of RM198.1mil.
IOI Corp explained that it incurred an unrealised fair value losses on foreign currency forward contracts of RM198.1mil in 1QFY16, which were entered into as a hedge to protect the ringgit denominated margin of its manufacturing business.
The plantation heavyweight also booked a forex translation loss of RM853.9mil on its foreign denominated borrowings of RM7.63bil due to the weaker ringgit. Approximately 84% of its foreign debts are US$ loans, which were hit by translation loss due to the 18% depreciation in the ringgit against the US$ in 1Q.
“The group recently revised down its FFB output growth target to 3%-5% from its initial forecast of 5%-7% due to the prolonged haze. It expects the CPO price to trend higher in 1QCY16 and the plantation division to perform satisfactorily in the remaining quarters.
“It projects its manufacturing segment to do better as its oleo division will benefit from low feedstock costs and higher glycerine prices, while the specialty fats division will benefit from resilient demand from the food sector.
“We maintain our earnings forecast but raise our target price to RM4.07 as we roll over our SOP-based valuation to end-2016. The stock remains a Reduce due to its rich valuations as well as the poor 1Q results. On top of this, it may not be reinstated into the Shariah list in the upcoming November 2015 review, as it may not have complied with the business activity benchmarks under the Shariah screening rules,” said CIMB Research.
“We consider the results to be broadly in line as we expect stronger earnings in future quarters due to higher crude palm oil (CPO) prices and some recovery of its derivatives losses. Reported net profit was below due to forex translation losses of RM854mil on its foreign debts due to the weaker ringgit,” it said on Tuesday.
CIMB Research said the 1QFY16 core net profit fell 41% on-year due mainly to lower plantation earnings and fair value losses on its derivative instruments.
Plantation earnings before interest and tax (EBIT) fell 9% on the back of lower average selling price (ASP) for CPO and palm kernel, while fresh fruit bunches (FFB) production was flat. Resource-based manufacturing EBIT grew 47% on-year due to improved performances from the oleochemicals and refining margins. However, these were offset by fair value losses on derivatives of RM198.1mil.
IOI Corp explained that it incurred an unrealised fair value losses on foreign currency forward contracts of RM198.1mil in 1QFY16, which were entered into as a hedge to protect the ringgit denominated margin of its manufacturing business.
The plantation heavyweight also booked a forex translation loss of RM853.9mil on its foreign denominated borrowings of RM7.63bil due to the weaker ringgit. Approximately 84% of its foreign debts are US$ loans, which were hit by translation loss due to the 18% depreciation in the ringgit against the US$ in 1Q.
“The group recently revised down its FFB output growth target to 3%-5% from its initial forecast of 5%-7% due to the prolonged haze. It expects the CPO price to trend higher in 1QCY16 and the plantation division to perform satisfactorily in the remaining quarters.
“It projects its manufacturing segment to do better as its oleo division will benefit from low feedstock costs and higher glycerine prices, while the specialty fats division will benefit from resilient demand from the food sector.
“We maintain our earnings forecast but raise our target price to RM4.07 as we roll over our SOP-based valuation to end-2016. The stock remains a Reduce due to its rich valuations as well as the poor 1Q results. On top of this, it may not be reinstated into the Shariah list in the upcoming November 2015 review, as it may not have complied with the business activity benchmarks under the Shariah screening rules,” said CIMB Research.