Results

• 1QFY18 core net profit of RM291.4m (qoq: +41.8%; yoy: +9.4%) came in within expectations, accounting for 24.6- 25.1% of consensus and our full-year forecasts.

Deviations

• Broadly in line.

Dividends

• None for the quarter.

Highlights

• QoQ… 1QFY18 core net profit rose 41.8% to RM291.4m mainly on the back of: (1) An 8.8% increase in FFB production, which has in turn resulted in operating profit at the plantation division increasing by 18.5% to RM277.7m; and (2) improved profitability at oleochemical and refining sub-segments, as well as better sales volume at refining sub-segment, which have in turn resulted in operating profit at the manufacturing division increasing by 20.2% to RM123m.

• YoY…. 1QFY18 core net profit increased by 9.4% to RM291.4m as weaker plantation earnings (arising from weaker FFB production) was more than mitigated by: (1) Improved profitability at oleochemical and refining subsegments, as well as higher sales volume at oleochemical sub-segment (which have collectively resulted in operating profit at the manufacturing division more than tripled to RM123m from RM36.9m a year ago); (2) Lower net finance cost; and (3) Higher associate earnings.

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. 73x as at 30 Sep 2017) and strong operating cash flow generation (RM1.29bn or 20.5 sen/share in FY17), further upside is capped by its lofty valuation (FY18-19 P/E of 24.1x and 22x, respectively)

Valuation

• Maintain HOLD recommendation, with unchanged SOPderived TP of RM4.76 (see Figure 4).

Source: Hong Leong Investment Bank Research - 20 Nov 2017