• IOI’s 9M19 core profit of RM540.2m was within our estimates, making up 74% of our full year forecast.

• Higher margins of 7.4% (9M18: 3.8%) from Resources Based Manufacturing (RBM) mitigated the lower contribution from plantation segment.

• Core PBT of RM290.4m was higher by 15.6% qoq (+21.4% yoy) on account of higher contribution from RBM segment mainly due to higher margins from refining sub-segment.

• Maintain earnings forecast for FY19 and FY20 with unchanged TP of RM5.00. Upgrade to Buy.

Earnings within estimate

IOI posted a lower core profit of RM540.2m for 9M19 vs. RM700.8m in 9M18. 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 mitigated by the higher RBM segment profit, attributable to higher margins from all sub-segment, and higher contribution from associate, Bunge Loders Crocklaan Group. 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.

Higher margins from RBM segment

Adjusted core PBT of RM290.4m in 3Q19 was higher than RM251m recorded in 2Q19 and 21% higher from 3Q18 mainly due to higher margin from RBM segment, offset by lower margin from plantation segment. Margins from oleo-chemical and refining sub-segment, as well as from associates, were all higher. On the flip-side, plantation segment margin was squeezed to 27% from 31% in 2Q19 and 43% in 3Q18. The lower profit from plantation segment is due mainly to lower CPO ASP realised of RM1,971/MT against RM1,932/MT in 2Q19 and RM2,471/MT in 3Q18.

No change in forecast, upgrade to Buy

We keep our FY19 and FY20 earnings forecast unchanged and maintain out TP at RM5.00 based on average 5-yrs low P/B of 3.1x on FY20F BV/share of RM1.62. IOI’s share price has fallen by 5% YTD and we now see value emerging in the stock with an upside of 18% from current price. Upgrade to BUY.

Source: BIMB Securities Research - 23 May 2019