Results

FY06/13 core net profit of RM1.65bn (-5.7%) came in slightly below expectations, accounting for 92.7% and 93% of our and consensus estimates, respectively.

Deviations

Lower-than-expected CPO price.

Dividends

Declared 2nd interim single-tier DPS of 8.5 sen (ex date: 9 Sep 13; payment date: 26 Sep 13), bringing total DPS YTD to 15.5 sen, We projected a total DPS of 17 sen for the full year.

Highlights

FY06/13 core net profit declined by 5.7% to RM1,710.9m mainly on the back of lower palm product prices (CPO: - 22.4%; PK: -35.1%), which more than offset higher contribution from the property and resource-based manufacturing divisions.

Yoy, 4QFY06/13 core net profit declined by 40.2% mainly on the back of drastically lower realized average palm product prices (CPO: -28.7%), which more than offset higher FFB production and higher contribution from the property and resource-based manufacturing earnings.

Qoq, 4QFY06/13 core net profit declined by 34.7% to RM303.2m mainly on the back of lower plantation and resource-based manufacturing earnings, which altogether more than offset higher property earnings (which were in turn driven mainly by higher development revenue).

Risks - downside

• Recovery in global vegetable oil production may result in a sharp plunge in vegetable oil prices; and
• Economic uncertainties in world’s major economies that may hurt demand and prices of edible oil (including palm oil).

Forecasts

Maintained for now, pending a review on our average CPO price assumptions. Based on our estimates, every RM100/tonne change in our CPO price assumption will change IOI’s FY06/14-15 net profit forecast by 3.8-3.9%, and our SOP-derived TP by 3.5%.

Rating

HOLD

Positives –

• Value accretive demerger; and
• Strong balance sheet.

Negatives –

• Weak near-term upstream plantation sector outlook.

Valuation

SOP-derived TP adjusted slightly upwards to RM5.16 (from RM5.11 previously) mainly to reflect IOIC’s latest net debt position. Maintain Hold recommendation on the stock as we believe our less bullish view on IOIC’s plantation earnings outlook will be mitigated by the recently announced demerger proposal, which would unlock values of IOIC’s property business.

Source: Hong Leong Investment Bank Research - 22 Aug 2013