PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 3 Jul 2020, 10:20 AM


IOI Corp- Hit By Weaker Downstream Earnings

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IOI Corp posted core net profit of RM479.5m (YoY: -13%) for 9MFY20, which came in below our and the street expectations, making up only 65% and 58%, respectively after stripping out i) total net foreign currency (FX) translation loss of RM206.5m on FX denominated borrowings and deposits, ii) FX gain of RM11.7m, iii) fair value gain on derivatives amounting to RM9m, iv) fair value gain on options, RM69.2m and v) net gain arising from changes in fair value of biological assets, RM17.7m. The weaker-than-expected results were mainly attributed to weaker earnings contribution from the resource-based manufacturing segment as well as supply disruption in Sabah estates during the MCO. Despite the disappointing results, we retain our earnings projection as we see a strong catch-up in the final quarter. No dividend was declared for the quarter. Maintain Neutral call with an unchanged TP of RM4.19.

  • 3QFY20 revenue (QoQ: +4%, YoY: +7.6%). Group revenue in 3QFY20 rose 7.6% YoY to RM2bn, led by both plantation and resource-based manufacturing segments. Upstream plantation sales jumped 47.8% YoY to RM68m, bolstered by stronger CPO product prices. Average CPO price recorded in 3QFY20 jumped from RM1,971/mt to RM2,704/mt. For the first 9 months, it rose 12.5% YoY to RM2,294/mt. Palm kernel price rose 28.7% YoY to RM1,688/mt. Meanwhile, FFB production dropped 29.6% YoY to 631,941mt. YTD, FFB production totaled 2.2 m mt, making up 64% of our full-year projection. Resource-based manufacturing sales were higher, up 6.5% YoY to RM1.9bn.
  • 3QFY20 core net profit (QoQ: -64.7%, YoY: -53.7%). Stripping out all the exceptional items, the Group saw weaker core earnings of RM76.9m, mainly dragged by a sharp decline in resource-based manufacturing earnings. Plantation earnings grew 19.8% YoY to RM159m on the back of stronger plantation margin despite an increase in cost of CPO production due to weaker FFB production. Earnings from the resource based manufacturing segment tumbled 81.8% YoY to RM31.7m, dragged by weaker earnings contribution form oleochemical and refining sub-segments as a result of lower margins and sales volume. In addition, this was exacerbated by losses of RM20m incurred by its specialty fats associate, Bunge Loders Croklaan group due to the provision of doubtful debts as well as mark-to-market losses from commodity derivatives.
  • Outlook guidance. Management expects to see steady financial performance for its plantation segment in the final quarter in view of rising FFB production, which will offset the impact of weaker CPO prices. With the relatively low palm kernel oil feedstock price, the margins for oleochemical sub-segment is expected to remain steady or improved in some categories. The refinery sub-segment is also expected to perform better due to the healthy refining and fractionation margins. However, the specialty fats sub-segment, which is under its associate company Bunge Loders Croklaan, is expected to be affected by the lockdowns in EU and US, which have affected the demand for their products.

Source: PublicInvest Research - 28 May 2020

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