PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 15 Nov 2019, 9:19 AM


IOI Corporation - Weaker FY19 But Within Our Expectation

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IOI Corp posted a core net profit of RM693.7m (YoY:-17.3 %) for FY19, which came in within our estimates, making up 95% but it missed the street expectation by at least 10% after stripping out i) total net foreign currency (FX) translation loss of RM102.1m on FX denominated borrowings and deposits and ii) fair value gain of RM28.9m on derivative financial instruments from the resource-based manufacturing segment. Despite weaker-than-expected plantation earnings due to weaker CPO price performance, the resource-based manufacturing delivered stronger results thanks to higher oleochemical sales volume and better margins. A final single-tier DPS of 4.5sen was proposed for the quarter, bringing the cumulative dividend to 8sen for FY19 (vs FY18: 20.5sen). Maintain Neutral call with an unchanged TP of RM3.98.

  • 4QFY19 revenue (QoQ: -8.1%, YoY: -3.5%). Group revenue slipped 3.5% YoY to RM1.7bn, led by weaker sales contributions from upstream plantation and resource-based manufacturing segments. Upstream plantation sales dropped 8.7% YoY to RM45.3m, dragged by a decline in CPO selling prices. Average CPO price recorded in 4QFY19 was down from RM2,409/mt to RM1,988/mt, down 17.4% YoY. Meanwhile, FFB production rose 5.6% YoY to 804,736mt. Resource-based manufacturing sales dropped by 3.4% YoY to RM1.6bn.
  • 4QFY19 core net profit (QoQ: -7.5%, YoY: -3.0%). Core earnings dipped 3% YoY to RM153.5m. The weaker results were due to softer earnings contribution from upstream plantation segment while resource based manufacturing earnings remained steady. Plantation earnings tumbled 34.3% YoY to RM88.9m, attributed to higher cost of production and weaker CPO selling prices. Resource-based manufacturing earnings slipped 1.7% YoY to RM120m as lower earnings contribution from its 30%-owned specialty fats associate company, Bunge Loders Croklaan Group, partly offset by higher sales volume and margins from refining sub-segment.
  • Prospects. Management expects a gradual recovery in CPO prices for FY20F as palm oil stocks have started to soften. On FFB production, it expects to improve slightly with the higher production from the young Indonesian plantations, which offset the weaker FFB production from Sabah due to more aggressive replanting activities. As for the resource based manufacturing segment, it expects to see another decent performance from the oleochemical sub-segment due to the moderately low feedstock cost. Lastly, its 30%-owned specialty fats associate company, Bunge Loders Croklaan, is anticipated to sustain its performance in FY20F with higher volume in the confectionery and human nutrition categories.

Source: PublicInvest Research - 16 Aug 2019

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