IOI Corp’s 1HFY18 core net profit of RM616.4m came in within our and street’s expectations, accounting for 54.5% and 52.6% of our and street’s FY18 forecasts. As such, no changes was made to our 2018- 20E core EPS forecast and our target price of RM3.92. Maintain our SELL call on IOI Corp.

1HFY18 Results Within Expectations

IOI Corp’s 1HFY18 revenue declined by 4.8% yoy to RM4.61bn. Revenue contribution from the plantation division was higher but was offset by the decline in contribution from resource-based manufacturing division. The CPO ASP in 1HFY18 was marginally higher at RM2,650/MT (1HFY17 CPO ASP: RM2,614/MT) while CPO production increased by 7.7% yoy to 408.3k MT. IOI Corp’s PBT that is inclusive of net foreign currency translation gain and fair value gain on derivative financial instruments from the resource-based manufacturing division surged more than 100% yoy to RM1,073m. However, after excluding forex and other one-off items, 1HFY18 core net profit declined by 10.9% yoy to RM616.4m. This came in within our and street’s expectation, accounting for 54.5% and 52.6% of our and consensus FY18 forecasts. IOI Corp declared an interim DPS of 4.5 sen (1HFY17 DPS: 4.5 sen).

Stronger Sequentially - Core Net Profit of RM331.3m, Up 16.2% Qoq

Sequentially, IOI Corp’s 2QFY18 revenue increased by 8.8% qoq to RM3.4bn, due to an increase in contribution from both plantation and resource-based manufacturing divisions. PBT was also higher, up by 38.4% qoq to RM622.9m on higher net foreign currency translation gain and fair value gain on derivative financial instruments. After excluding forex and other one-off items, 2QFY18 core net profit increased by 16.2% qoq to RM331.3m.

Maintain SELL With An Unchanged TP at RM3.92

We leave our FY18-20E core EPS forecasts unchanged as there were no major surprises to IOI Corp’s 1HFY18 results. We maintain our SELL rating on the stock, based on lofty valuations. TP remains unchanged at RM3.92, based on an unchanged 22x PER on 2018E EPS.

Source: Affin Hwang Research - 26 Feb 2018