• IOIC’s 1Q18 net profit of RM272.3m, excluding translation gain on foreign currency denominated borrowings of RM68.6m, is in-line with our forecast.
• Core PBT grew by 26% yoy to RM401.3m due to higher contribution from both resources-based manufacturing (RBM) segment and plantations segment, as well as share of results of associates of RM32.2m (1Q17: RM17.3m).

• EBIT margin improved from 14.8% to 18.9% yoy in 1Q18 mainly due to higher margins from the oleo-chemical and refining sub-segments.

• Maintain HOLD with TP of RM4.64.

Better margin from RBM segment

IOIC posted a higher core PBT of RM401.3m, an increase of 26% from 1Q17. This is after adjusting for 1) foreign currency translation gain of RM68.6m (1Q17: loss RM172.0m); 2) fair value loss on derivative financial instruments from the RBM segment of RM21.5m; 3) fair value gain in biological asset and derivative instrument in plantation segment of RM1.7m (1Q17: gain of RM35.7m for plantation segment and RM46.6m loss in RBM segment), The higher profit is mainly driven by contribution from the RBM segment which saw an improvement in margin to 6.0% from 1.8% in 1Q17. The RBM segment registered a higher profit of RM128.1m compared to RM41.0m in 1Q17 mainly due to higher margin from oleochemical and refining sub-segments as well as higher sales volume from the oleochemical sub-segment.

Slightly lower margins from plantations segment

Core plantation profit slipped 2.3% yoy to RM303.9m as margins shrank from 53.2% to 51.5%. The lower profit is due mainly to lower PK prices realized as well as lower production. PK price realized during the period was 12.3% lower to RM2,284/MT; although CPO price realized was 7.4% higher at RM2,645/MT. Both of the FFB and CPO production dropped slightly by 1.8% and 1.5% respectively to 869.8k tones and 191.5k tones. This was also added by lower OER of 21.33% (-1.9% yoy) during the period.

Source: BIMB Securities Research - 21 Nov 2017