Results

• Within our expectation. 3QFY17 core net profit of RM115.8m (qoq: -67.7%; yoy: -11.1%) took 9MFY17 core net profit to RM844.6m (+19.8%). The results came in within our expectation, accounting for 75.8% of our full year forecast. Against the market, the results accounted for 70.8% of consensus full-year forecasts.

Deviations

• Broadly in line.

Dividends

• None.

Highlights

• QoQ… 3QFY17 core net profit declined by 67.7% to RM115.8m, dragged mainly by weaker showings at both plantation and manufacturing segments. Although realized palm product prices were 11.4-12.6% higher, plantation earnings were weaker, as FFB production declined by 20.8% to 544k tonnes (due to seasonal factors). Core operating profit at the manufacturing segment declined by 91.9% to RM13.4m and this was due mainly to lower sales volume and margin erosion at the refining and oleochemical segments.

• YoY… 3QFY17 core net profit declined by 11.3% to RM115.8m, as higher plantation earnings (arising from FFB output recovery and better palm product prices) were offset by weaker manufacturing segment (which core operating profit declined by 88.8% to RM13.4m). The weaker performance at the manufacturing segment was due mainly to lower sales volume from all the sub segments and weaker margin at the refining and oleochemical sub-segments.

• YTD… 9MFY17 core net profit increased by 19.8% to RM844.6m, as better performance at the plantation segment (arising from better palm product prices) was partly offset by weaker manufacturing earnings (arising from weaker contributions from oleochemical and refining sub-segments, but partly mitigated by better performance at the specialty oils and fats sub-segment).

Risks - downside

• Weaker-than-expected FFB output;

• Escalating CPO production cost; and

• Weaker-than-expected recovery in edible oil demand and prices.

Forecasts

• Maintained.

Rating

HOLD ( ↔ )

• While we like IOI for its efficient plantation management (evidenced by its superior FFB yield vis-à-vis the industry average), healthy balance sheet (net gearing of 0.66x as at FY16) and strong operating cash flow generation (RM1.63bn or 26 sen/share in FY16), further upside is capped by its lofty valuation (FY17-18 P/E of 22.1x and 21.5x respectively.

Valuation

• Maintain SOP-derived TP of RM4.69 (see Figure 5), and our HOLD recommendation on the stock

Source: Hong Leong Investment Bank Research - 17 May 2017