• IOI’s 9M18 core profit of RM799m came in-line with our and consensus estimates, making up 72% of our full year forecast.

• Higher margins of 3.9% (9M17: 2.0%) from Resources Based Manufacturing (RBM) contributed to the improved results.

• Core PBT of RM267.5m was lower by 27% qoq on account of lower contribution from plantation segment attributable mainly from lower FFB production and lower CPO and PK price realized.

• Core PBT is +24% yoy mainly due to higher contribution from RBM segment.

• Maintain HOLD with TP of RM4.80

Core earnings within estimate

IOI posted a higher core profit of RM799.0m in 9M18, an 11% increase from 9M17 of RM720m. The higher profit was mainly due to higher contribution from RBM segment that saw margin increased to 3.9% from 2.0% recorded in the same period last year. The RBM segment registered a higher core profit of RM261.6m compared to RM141.5m in 9M17 on account of higher sales volume from the oleochemical and refining sub-segments as well as higher margins from oleochemical sub-segment.

We are banking on IOI’s RBM segment to continue to perform well and act as buffer against any potential downside risk from plantation segment. According to management, Bunge Loders Croklaan (30% own associate) is expected to perform better with good demand for its core products and the realisation of synergies with the larger Bunge Group. 

Lower margins from plantation segment

Core plantation profit fell 6% yoy to RM898.6m in 9M18 as margins slipped from 53.7% to 48.3%. The lower profit is attributable to lower CPO and PK prices as well as lower CPO extraction rate – though this was mitigated by higher FFB and CPO production. Total FFB and CPO production increased by 16.9% and 14.1% respectively to 2.36m MT and 517,232 MT during the period.

Lower ASP of CPO and PK

On qoq basis, core profit fell 44% to RM186.4m on account of lower revenue of RM2.31bn (-4% qoq). This was due to the effect of lower ASP of CPO and PK as well as lower FFB production (-15% qoq to 886,791 MT). On yoy basis, core profit was lower by 21% mainly due to lower ASP of CPO and PK despite higher FFB production.

No change in forecast, maintain HOLD

We keep our FY18 and FY19 earnings forecast unchanged and maintain out TP at RM4.80 based on FY19 EPS and PER of 25x.

Source: BIMB Securities Research - 17 May 2018