IOI’s 9MFY18 core net profit of RM913.5m (+6.9%) came in within our expectation, accounting for 73.9% of our full-year forecast. Against the consensus, the results accounted for 80.4% of consensus full-year forecast. We maintain our core net profit forecasts, but raised our SOP-derived TP slightly higher by 0.8% to RM4.80 as we updated our valuation parameters.

Within our expectation. IOI’s 9MFY18 core net profit of RM913.5m (+6.9%) came in within our expectation, accounting for 73.9% of our full-year forecast. Against the consensus, the results accounted for 80.4% of consensus full-year forecast.

QoQ. 3QFY18 core net profit declined by 25.3% to RM257.6m, as stronger manufacturing earnings were more than offset by lower FFB production and palm product prices. Adjusted for fair value loss on derivative financial instruments, manufacturing division’s operating profit rose 20% to RM69.6m and this was due mainly to higher profit from the merchandising activities.

YoY. 3QFY18 core net profit rose 72.4% to RM257.6m, as lower plantation profit (arising from lower palm product prices) was more than mitigated by improved manufacturing performance. Adjusted for fair value loss on derivative financial instruments, manufacturing division’s operating profit more than quadrupled to RM69.6m (from RM13.4m a year ago) mainly due to higher sales volume and improved profitability at oleochemical sub-segment.

YTD. 9MFY18 core net profit rose 6.9% to RM913.5m, as lower plantation profit (arising from lower palm product prices) was more than mitigated by improved manufacturing performance. Despite FFB production increasing by 16.9% to 2.75m tonnes, core plantation operating profit declined by 7% to RM814m, as higher FFB production was more than offset by lower palm product prices. Adjusted for fair value loss on derivative financial instruments, manufacturing division’s core operating profit improved by 40% to RM402m mainly on the back of higher sales volume from oleochemical and refining sub-segments, as well as improved margins at oleochemical sub-segment.

Forecast. Maintain.

Maintain HOLD, TP: RM4.80. We raise our SOP-derived TP slightly higher by 0.8% to RM4.80 as we updated our valuation parameters. 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 0.3x as at 31 Mar 2018) 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 24.2x and 22.1x, respectively). Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 17 May 2018