IOI’s 2QFY20 core net profit of RM220.1m (QoQ: +36.7%; YoY: +4.6%) took 1HFY20 core net profit to RM417.7m (+8.1%). The results came in within our expectation, accounting for 48.4% of our full-year estimates. Against the consensus, 1HFY20 core net profit accounted for 47% of consensus full-year estimates. We maintain our FY20 core net profit forecast, but tweaked our FY21- 22 core net profit forecasts lower by 1.6% and 0.5%. Maintain HOLD rating with a slightly lower SOP-derived TP of RM4.91 (from RM5.00 earlier), to account for (i) a slight downward revision in our FY21 net profit forecast, and (ii) 32%- owned Bumitama’s latest share price.

Within expectations. 2QFY20 core net profit of RM220.1m (QoQ: +36.7%; YoY: +4.6%) took 1HFY20 core net profit to RM417.7m (+8.1%). The results came in within our expectation, accounting for 48.4% of our full -year estimates. Against the consensus, 1HFY20 core net profit accounted for 47% of consensus full-year estimates.

Exceptional items (EIs) in 2QFY20. During the quarter, we adjusted for RM6.6m worth of EIs from IOI’s reported net profit. These include (i) RM0.6m fair value gain on biological assets, (ii) RM93m fair value loss on derivative financial instruments at manufacturing segment, and (iii) RM85.8m net translation gain on foreign currency denominated borrowings and deposits.

Dividend. Declared 1st interim DPS of 4 sen (vs. DPS of 3.5 sen in 1HFY19), which the ex-date falls on 2 Mar 2020. For the full-year, we are projecting a total DPS of 8 sen, translating to dividend yield of 1.8% for FY20.

QoQ. 2QFY20 core net profit rose 36.7% to RM220.1m, driven mainly by higher realised average CPO and PK prices (which increased by 11.5% and 23.7% to RM2,46/tonne and RM1,393/tonne), which more than mitigated a 0.4% decline in FFB output, weaker manufacturing earnings (arising from lower contributions from oleochemical and refining sub-segments, but partly mitigated by improved associate earnings from Loders).

YoY. 2QFY20 core net profit grew 36.7% to RM220.1m, helped mainly by a 16.3% increase in realised average CPO price and improved associate earnings from Loders. These more than mitigated an 18.8% decline in FFB output, lower realised average PK price, and lower contributions from oleochemical and refining sub segments.

YTD. 1HFY20 core net profit grew 8.1% to RM417.7m as lower FFB output (-5.7%) and realised average PK price (-20.1%), and weaker sales volume and margins at oleochemical sub-segment were more than mitigated by marginally higher realised average CPO price (+2.3%), and improved earnings from Loders.

Forecast. We maintain our FY20 core net profit forecast, but tweaked our FY21-22 core net profit forecasts lower by 1.6% and 0.5%, as we recalibrated our earnings model following the release of annual report recently.

Maintain HOLD; TP: RM4.91. We maintain our HOLD rating on IOI, with a slightly lower SOP-derived TP of RM4.91 (from RM5.00 earlier), to account for (i) a slight downward revision in our FY21-22 net profit forecasts, and (ii) 32% -owned Bumitama’s latest share price.

Source: Hong Leong Investment Bank Research - 19 Feb 2020