IOI Corp’s 1QFY18 core net profit of RM285.1m (+10.3% yoy) came in within our and street’s expectations, accounting for 25% and 24% of our and street’s FY18 forecasts. As such, we have maintained our FY18 core EPS forecast but cut our FY19-20E core EPS forecast by 4- 5% mainly to account for the disposal of stake in IOI Loders Croklaan. Our target price on IOI Corp has also been lowered to RM3.92. Maintain our SELL rating on the stock.

1QFY18 Results Within Expectations

IOI Corp reported a lower 1QFY18 revenue by 5.3% yoy to RM2.2bn. Revenue contribution from resource-based manufacturing division was lower yoy but partially offset by higher contribution from plantation division. The CPO ASP in 1QFY18 was higher at RM2,645/MT (1QFY17: RM2,464/MT) but CPO production was slightly lower by 1.5% yoy to 191.5k MT. For 1QFY18, IOI Corp’s PBT more than tripled yoy to RM450.1m, mainly due to net forex translation gain of forex denominated borrowings and fair value loss on derivative financial instruments from the resource-based manufacturing division, partially offset by lower fair value gain on biological assets. After excluding forex and other one-off items, 1QFY18 core net profit increased by 10.3% yoy to RM285.1m, which accounts for 25% and 24% of our and street’s FY18 forecasts. This came in within our and street’s expectation. No interim dividend has been proposed for the first quarter.

Maintain SELL With a Lower TP of RM3.92

We have maintained our FY18 core EPS forecast but cut our FY19-20E core EPS forecast by 4-5% mainly to account for the disposal of 70% stake in IOI Loders Croklaan. As such, our target price for IOI Corp is now lowered to RM3.92 (from RM4.00 previously), based on an unchanged 22x PER on 2018E EPS. Maintain our SELL rating on IOI Corp.

Key Risks

Key risks to our SELL rating include: 1) stronger-than-expected recovery in the global economy; 2) higher vegetable oil and crude oil prices; 3) stronger-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 20 Nov 2017