• Overview. IOI recorded a 5% increase in core profit of RM218m in 2Q20 mainly due to higher profit contribution from all segment as margin improved to 13% from 11% in 2Q19. This also was aided by 36% increase in share of associate results of RM62.3m. On qoq basis, the higher profit was a result of higher profit contribution from plantation segment on account of higher CPO and PK prices realised of RM2,246/MT and RM1,393/MT respectively from RM2,014/MT and RM1,126/MT in 1Q20.

• Against estimates: inline. 1H20 core profit was in line at 51% of our full year estimates given higher contribution from all segments. The higher profit from Resources-based Manufacturing (RBM) segment was attributed to higher contribution from refining sub-segment and by higher share of result from associate. Meanwhile, higher profit from plantation segment is due to higher CPO price realised and improved oil extraction rate (Table 3).

• Dividend. The Board has declared an interim dividend of 4.0sen per share (1H19: 3.5sen) for FYE June 2020, to be payable on 13 March 2020. Based on current market price, this translates into DY of 0.89%.

• Outlook. We believe RBM segment would continue to perform well despite potential margin squeeze on higher feedstock cost. On the other hand, the plantation segment would continue to sustain its performance given better PO price expected versus FY2019.

• Our call. Maintain TP of RM5.00 based on average 5-yrs low P/B of 3.1x on target BV/share of RM1.62. IOI’s share price has fallen by 2.4% YTD and we now see value emerging in the stock with an upside of 11% from current price. Upgrade to BUY.

Source: BIMB Securities Research - 19 Feb 2020