-  Maintain BUY on IOI Corporation with an unchanged fair value of RM5.15/share, which is roughly based on a FY15F PE of 25x.

-  IOI has been increasing its shareholding in Bumitama Agri Ltd (BAL). IOI bought 1.5mil shares in BAL in early-January 2014. IOI also acquired 360,000 shares in BAL in June 2013. IOI’s equity interest in BAL is 31.4% currently.

-  IOI’s 1HFY14 results were below consensus estimates but were in line with our earnings forecast.

-  IOI’s core net profit rose by 12.2% YoY to RM936.1mil in 1HFY14 on the back of strong manufacturing earnings.

-  Plantation EBIT slid by 21.2% from RM659mil in 1HFY13 to RM519.3mil in 1HFY14 dragged by contractions in CPO price and production. EBIT margin declined from 59.2% in 1HFY13 to 49.9% in 1HFY14.

-  Average CPO price realised fell 7.7% from RM2,585/tonne in 1HFY13 to RM2,386/tonne in 1HFY14. FFB production inched down by 1.7% YoY in 1HFY14.

-  On a QoQ basis, plantation EBIT improved by 18.6% to RM281.7mil in 2QFY14, underpinned by higher CPO price and output.

-  IOI’s average CPO price realised was RM2,425/tonne in 2QFY14 vs. RM2,347/tonne in 1QFY14.

-  FFB production climbed by 16.2% QoQ to 1 million tonnes in 2QFY14.

-  Manufacturing division continued to perform well on the back of low cost of feedstock. Manufacturing EBIT almost doubled from RM231.9mil in 1HFY13 to RM460.4mil in 1HFY14.

-  EBIT margin of the division improved by 3.7% from 1HFY13 to 7.6% in 1HFY14. However, turnover declined by 4.2% YoY to RM6.0bil in 1FHY14 due to a fall in selling prices.

-  On a QoQ basis, EBIT margin of the manufacturing unit edged up from 6.6% to 8.9% in 2QFY14 in spite of the increase in CPO price. Manufacturing EBIT increased by 20.6% QoQ to RM251.7mil in 2QFY14.

-  We believe that oleochemical, refining and specialty fats contributed equally to IOI’s manufacturing earnings.

Source: AmeSecurities