- We are keeping our HOLD recommendation on IOI Corporation with an unchanged RNAV-based fair value of RM5.70/share. Our fair value implies a PE of 19x on IOI’s CY14F plantation earnings and asset value of RM12bil for the property division.

- IOI’s property demerger exercise is expected to be completed by year-end.

- IOI’s FY13 core net profit was within our expectations but was below consensus estimates. Interestingly, IOI bought 360,000 shares in Bumitama Agri Ltd (BAL) in June 2013, increasing its stake in BAL to 31.2%.

- IOI’s core net profit fell by 12.3% to RM1.6bil in FY13 due to lower CPO price. Average CPO price realised was RM2,433/tonne in FY13 compared with RM3,135/tonne in FY12.

- Dragged by weaker selling prices, plantation EBIT slid by 35.4% to RM1bil in FY13. Although FFB production rose by 7% YoY to 3.4mil tonnes in FY13, this was not enough to offset the impact of a 22.4% YoY fall in CPO price.

- Bright spots were improved profitability from the manufacturing and property divisions. Operating profit of the property development division strengthened by 23% YoY to RM555mil in FY13 on the back of positive sales from the Bandar Putra Kulai and Kempas Utama township projects in Johor.

- Sales of IOI’s properties in Johor overtook Klang Valley for the first time in FY13.

- Share of profits in the property joint ventures expanded from RM32.7mil in FY12 to RM82.5mil in FY13 underpinned mainly by the Cityscape residential project in Singapore.

- IOI’s launch of the first tower of the Trilinq condominium project at Jalan Lempeng received a favourable take-up rate of 40% a couple of months ago.

- Manufacturing EBIT climbed by 124.5% YoY to RM575.5mil in FY13 aided by margin enhancements from a decline in feedstock costs. EBIT margin inched up from 1.8% in FY12 to 4.8% in FY13.

- In spite of an improved EBIT margin, turnover of the manufacturing division shrank by 16.7% YoY to RM12bil in FY13. We believe that this was due to lower selling prices. IOI’s manufacturing division consists of contribution from the refining, specialty fats and oleochemical business units.

Source: AmeSecurities