• IOI’s 1H19 core PATAMI of RM369.4m (-31% yoy) came in-line with our estimates, making up 50% of our full year forecast; on account of lower contribution from plantation segment due to lower ASP of CPO and PK as well as lower FFB production.

• Adjusted PBT of RM244m in 2Q19 was marginally higher than RM236m recorded in 1Q19, mainly due to higher margin from RBM segment, offset by lower margin from plantation segment.

• Declared first interim dividend of 3.5sen vs. 4.5sen in 1H18.

• Maintain earnings forecast for FY19 and FY20, but TP was raised to RM5.00 from RM4.20 previously as we rolled forward our valuation to FY20F.

Core earnings within expectation

IOI posted a lower core profit of RM369.4m for 1H19 vs. RM535.5m in 1H18. The lower profit was due to lower contribution from plantation segment on account of lower CPO and PK price realised as well as lower FFB production (Table 2 and 3). However, this was cushioned by the higher RBM segment profit, attributable to higher sales volume and margins from oleo-chemical sub-segment, as well as higher contribution from associate, Bunge Loders Crocklaan Group.

Banking on RBM segment

Adjusted PBT of RM244m in 2Q19 was marginally higher than RM236m recorded in 1Q19 mainly due to higher margin from RBM segment, offset by lower margin from plantation segment. However this is 34% lower than 2Q18. Sales volume and margins from oleochemical and refining sub-segment, as well as from associate, were all higher. Adjusted for FV changes, RBM margin for 2Q19 was reported at 7% vs. 6% in 1Q19 and 3% in 2Q18. On the flip-side, plantation segment margin was squeezed to 31% from 33% in 1Q19 and 50% in 2Q18. The lower profit from plantation segment is due mainly to lower CPO ASP realised of RM1,932/MT against RM2,255/MT in 1Q19 and RM2,644/MT in 2Q18.

Declared first interim dividend of 3.5sen

The company has declared a first interim dividend of 3.5sen (1H18: 4.5sen) for FYE June 2019, to be payable on 22 March 2019. Based on current market price, this translate into 0.74%.

TP changed to RM5.00, maintain HOLD

No change in earnings estimates was made as we believe IOI’s RBM segment would continue to perform well and act as a buffer against downside risk from plantation segment. Maintain Hold with new TP of RM5.00 (RM4.20 previously) as we rolled forward our valuation to FY20F. The valuation is based on average 5-yrs low P/B of 3.1x on FY20F BV/share of RM1.62.

Source: BIMB Securities Research - 20 Feb 2019