21/11/2012 (The Star) -  Public Investment Bank Research maintained Neutral on IOI Corporation with an unchanged target price of RM5.59 while reviewing its crude palm oil (CPO) outlook.

"We foresee continuous pressure on the company's plantation unit given the stagnant growth in production yield, heightening production costs and persistent weak CPO prices," it said on Tuesday.

It said IOI Corp's first quarter financial year 2013 earnings were broadly in line with our and consensus forecasts, accounting for 21.9% and 21.5% of full year estimates respectively after stripping out translation gains of RM259.2 million on foreign currency denominated borrowings and other fair value changes.

"On a year-on-year comparison, IOI registered lower sales mainly in the upstream and downstream plantation segments. The upstream segment suffered a drop of 25.4% in revenue due to lower fresh fruit bunches (FFB) production and weaker CPO prices," it said.

It said IOI Corp's plantation segment, the biggest contributor of the group‟s operating earnings, declined 27.9% on heightening operating costs coupled with weaker CPO prices and lower FFB production.

"Surprisingly, its downstream business' contribution doubled, up 120%, driven by enhanced margins in the specialty fat sub-segment and fair value gain in foreign exchange and commodity forward contracts," it said.