MARKET DEVELOPMENT
CIMB Research Retains Hold for IOI Corp After 9M Results
CIMB Research Retains Hold for IOI Corp After 9M Results
17/05/2017 (The Star) - CIMB Equities Research is retaining its Hold call for plantation heavyweight IOI Corporation Bhd with a sum-of-parts based target price to RM4.64.
It said on Wednesday it had reduced its earnings per share (EPS) estimates by 4%-5% for FY17-19F to incorporate the lower manufacturing profit margin in 3Q.
“However, our sum-of-parts based target price of RM4.64 is not affected as we value our manufacturing division based on price-to-book value. Maintain Hold as we see share price support from a potential buy-back exercise and rich assets,” it said.
The key upside/downside risks are higher or lower crude palm oil (CPO) prices and fresh fruit bunches (FFB) output.
“IOI Corp’s 9MFY6/17 core net profit (excluding forex translation loss and gain from sale of assets) of RM826mil was below expectations, accounting for only 65% of our full-year forecast and 69% of consensus full-year estimate. The weaker performance was due mainly to lower manufacturing contribution,” it said.
The 3Q/9M FY6/17 core net profit fell 28%/6% on-year due to weaker earnings from its resource-based manufacturing division.
The weaker performance was due to lower sales volumes as well as profit margin from the oleochemical and refining divisions. This had more than offset the increase in plantation earnings.
IOI’s reported net profit for 3QFY17 fell at a higher rate of 58% on-year due mainly to the lower forex translation gain of RM91mil on its foreign-denominated debt vs. RM433mil gain in 3Q16.
The forex gain in 3Q helped narrow the forex loss registered for 9MFY17 to RM410.8mil. The forex losses were due mainly to the weaker ringgit.
However, plantation earnings before interest and tax (Ebit) grew 64% on-year to RM200mil in 3Q17 due to higher CPO (+36% to RM3,118/tonne), palm kernel prices (+168% to RM3,211/tonne) and a 25% rise in fresh fruit bunches (FFB) output as the palm trees recover from the El Nino impact.
Manufacturing Ebit (ex-fair value derivatives loss) fell 89% on-year due to lower sales volumes from all sub-segments, lower profit margin from oleochemical and refining divisions, due partly to net inventory write down of RM30.8mil.
“The group expects FFB output to continue to improve in 4Q and palm oil prices to be supported at the current level.
“However, the group projects palm oil prices to be lower in July-to-September due to higher FFB production by the industry. The group revealed that its resource-based division should perform better in 4Q due to lower raw material costs.
“The group also indicated that it has swapped some of its US$ debt to euro to diversify its forex risks and reduce its borrowing costs,” said the research house.
It said on Wednesday it had reduced its earnings per share (EPS) estimates by 4%-5% for FY17-19F to incorporate the lower manufacturing profit margin in 3Q.
“However, our sum-of-parts based target price of RM4.64 is not affected as we value our manufacturing division based on price-to-book value. Maintain Hold as we see share price support from a potential buy-back exercise and rich assets,” it said.
The key upside/downside risks are higher or lower crude palm oil (CPO) prices and fresh fruit bunches (FFB) output.
“IOI Corp’s 9MFY6/17 core net profit (excluding forex translation loss and gain from sale of assets) of RM826mil was below expectations, accounting for only 65% of our full-year forecast and 69% of consensus full-year estimate. The weaker performance was due mainly to lower manufacturing contribution,” it said.
The 3Q/9M FY6/17 core net profit fell 28%/6% on-year due to weaker earnings from its resource-based manufacturing division.
The weaker performance was due to lower sales volumes as well as profit margin from the oleochemical and refining divisions. This had more than offset the increase in plantation earnings.
IOI’s reported net profit for 3QFY17 fell at a higher rate of 58% on-year due mainly to the lower forex translation gain of RM91mil on its foreign-denominated debt vs. RM433mil gain in 3Q16.
The forex gain in 3Q helped narrow the forex loss registered for 9MFY17 to RM410.8mil. The forex losses were due mainly to the weaker ringgit.
However, plantation earnings before interest and tax (Ebit) grew 64% on-year to RM200mil in 3Q17 due to higher CPO (+36% to RM3,118/tonne), palm kernel prices (+168% to RM3,211/tonne) and a 25% rise in fresh fruit bunches (FFB) output as the palm trees recover from the El Nino impact.
Manufacturing Ebit (ex-fair value derivatives loss) fell 89% on-year due to lower sales volumes from all sub-segments, lower profit margin from oleochemical and refining divisions, due partly to net inventory write down of RM30.8mil.
“The group expects FFB output to continue to improve in 4Q and palm oil prices to be supported at the current level.
“However, the group projects palm oil prices to be lower in July-to-September due to higher FFB production by the industry. The group revealed that its resource-based division should perform better in 4Q due to lower raw material costs.
“The group also indicated that it has swapped some of its US$ debt to euro to diversify its forex risks and reduce its borrowing costs,” said the research house.