IOI Corporation - Boost from higher FFB output
Target RM4.32 (Stock Rating: REDUCE)
IOI Corp’s 1QFY6/15 core net profit, which excludes net forex translation losses, was broadly in line with our expectation (at 22% of full-year forecast) but fell short of consensus estimates (at only 19%). We expect better earnings in future quarters, driven by higher CPO prices and production. We keep our earnings forecasts and SOP-based target price intact. The stock remains a Reduce as we feel that the market has more than priced in the group's efficient plantation and downstream assets. There are also concerns that it may be removed from the Shariah list during the end-Nov review as it does not meet the conventional debt/total asset ratio of less than 33%.
1QFY15 results highlights
IOI Corp’s 1QFY6/15 reported net profit fell 41% yoy to RM177m as the group no longer consolidates property earnings following the completion of the demerger. Net profit from continuing operations fell 3% yoy due mainly to lower manufacturing earnings. Plantation EBIT rose 12% on the back of higher ASP for palm kernel and stronger FFB production (+10% yoy). Resource-based manufacturing EBIT fell 50% yoy due to lower refining margin and lower sales volume of oleo products. On a qoq basis, reported net profit declined 57% yoy due to absence of RM101m forex gains, RM52m demerger gains and property contributions following the spin-off of its property arm in Jan 2014.
Key observations on 1QFY15 results
The sharp yoy decline in IOI’s resource-based manufacturing EBIT is similar to the lower refining contributions reported by its peers, namely Wilmar and Golden Agri, as a result of aggressive capacity expansion both locally and abroad. Its 1QFY15 FFB yield recovered significantly from the year-ago level, which boosted FFB output by 10% yoy and 17% qoq. 1QFY15 average CPO price achieved of RM2,258, broadly in line with Malaysian Palm Oil Board’s (MPOB) average. In its recent AGM, the group said it expects CPO price to improve and hover at RM2,300-2,500 by 1H2015, due to Malaysia’s plans to implement the B7 biodiesel mandate nationwide.
Future plans of the group
The group targets to replant 5-8k ha of estates in Malaysia and plant around 6k ha of new palm oil estates in Indonesia per annum in the next three years. It is also reportedly in active talks with international players for potential joint ventures. We believe this is likely to be in the specialty fats industry.
Source: CIMB Daybreak - 18 November 2014
Target RM4.32 (Stock Rating: REDUCE)
IOI Corp’s 1QFY6/15 core net profit, which excludes net forex translation losses, was broadly in line with our expectation (at 22% of full-year forecast) but fell short of consensus estimates (at only 19%). We expect better earnings in future quarters, driven by higher CPO prices and production. We keep our earnings forecasts and SOP-based target price intact. The stock remains a Reduce as we feel that the market has more than priced in the group's efficient plantation and downstream assets. There are also concerns that it may be removed from the Shariah list during the end-Nov review as it does not meet the conventional debt/total asset ratio of less than 33%.
1QFY15 results highlights
IOI Corp’s 1QFY6/15 reported net profit fell 41% yoy to RM177m as the group no longer consolidates property earnings following the completion of the demerger. Net profit from continuing operations fell 3% yoy due mainly to lower manufacturing earnings. Plantation EBIT rose 12% on the back of higher ASP for palm kernel and stronger FFB production (+10% yoy). Resource-based manufacturing EBIT fell 50% yoy due to lower refining margin and lower sales volume of oleo products. On a qoq basis, reported net profit declined 57% yoy due to absence of RM101m forex gains, RM52m demerger gains and property contributions following the spin-off of its property arm in Jan 2014.
Key observations on 1QFY15 results
The sharp yoy decline in IOI’s resource-based manufacturing EBIT is similar to the lower refining contributions reported by its peers, namely Wilmar and Golden Agri, as a result of aggressive capacity expansion both locally and abroad. Its 1QFY15 FFB yield recovered significantly from the year-ago level, which boosted FFB output by 10% yoy and 17% qoq. 1QFY15 average CPO price achieved of RM2,258, broadly in line with Malaysian Palm Oil Board’s (MPOB) average. In its recent AGM, the group said it expects CPO price to improve and hover at RM2,300-2,500 by 1H2015, due to Malaysia’s plans to implement the B7 biodiesel mandate nationwide.
Future plans of the group
The group targets to replant 5-8k ha of estates in Malaysia and plant around 6k ha of new palm oil estates in Indonesia per annum in the next three years. It is also reportedly in active talks with international players for potential joint ventures. We believe this is likely to be in the specialty fats industry.
Source: CIMB Daybreak - 18 November 2014
