22.02.2019 (The Edge Markets MY) - IOI Corp Bhd

(Feb 21, RM4.58)

Maintain sell with a target price (TP) of RM4.25: Excluding the forex impact and other non-core items, IOI Corp’s first half of financial year 2019 (1HFY19) core net profit decreased by 27.2% y-o-y to RM386.3 million, accounting for 40% of our and consensus full-year estimate. Higher contribution from the manufacturing division failed to offset a lower contribution from the plantation division. We deem the results are within expectations as we expect a stronger 2H earnings underpinned by higher crude palm oil (CPO) price.

This segment registered a lower operating profit of RM208.8 million (-65.4% y-o-y) as a result of lower fresh fruit bunch (FFB) production and palm oil prices. Note that FFB production decreased by 10.1% y-o-y to 1.7 million tonnes, while CPO and palm kernel prices decreased by 21.5% and 31.6% to RM2,081 per tonne and RM1,576 per tonne, respectively.

In 1HFY19, the operating profit increased by 7.2% y-o-y to RM193.9 million mainly due to higher sales volume and margins from the oleochemical sub-segment.

The group declared a first interim single-tier dividend of 3.5 sen per share for the quarter under review. This was lower than 4.5 sen per share declared in the same period last year and no change on their earnings forecast.

IOI’s management expects palm oil stocks to decline below three million tonnes and believes that the current CPO price will sustain with the possibility of further price increase in 2Q 2019. However, FFB is expected to decline in 3QFY19. Meanwhile, the oleochemical sub-segment is expected to grow in the next quarter due to higher demand and favourable palm kernel oil price.

On the other hand, we understand that management is looking for some land investments in Malaysia and hope to complete by this year.

We maintain IOI’s TP at RM4.25, based on CY19 price earnings ration of 26 times and reiterate our sell recommendation as the stock is full valued. — TA Securities, Feb 21