IOI Corp’s 9MFY18 core net profit of RM896.9m came in within our and the street’s expectations, accounting for 79.3% and 79% of our and the street’s FY18 forecasts. As such, no changes are made to our 2018-20E core EPS forecasts but we raise our target price to RM4.06 from RM3.92 as we roll over our valuation base year to 2019E. Maintain our SELL call on IOI Corp.

9MFY18 Core Net Profit of RM896.9m, Within Expectations

IOI Corp’s 9MFY18 revenue declined by 3.6% yoy to RM6.9bn. The revenue contribution from the plantation division was higher but was offset by a decline in the contribution from the resource-based manufacturing division. 9MFY18 CPO ASP was lower at RM2,593/MT (9MFY17 CPO ASP: RM2,753/MT) while CPO production increased by 14.1% yoy to 590.3k MT. IOI Corp’s PBT that is inclusive of net foreign currency translation gains and fair value gains on derivative financial instruments from the resource-based manufacturing division surged more than 100% yoy to RM1.5bn. After excluding forex and other one-off items, 9MFY18 core net profit increased by 3.9% yoy to RM896.9m. This came in within our and the street’s expectations, accounting for 79.3% and 79% of our and consensus FY18 forecasts.

Weaker Sequentially - Core Net Profit of RM271m, Down 21% Qoq

Sequentially, IOI Corp’s 3QFY18 revenue declined by 3.7% qoq to RM2.3bn, due to a drop in the contribution from the resource-based manufacturing division. PBT and core net profit for 3QFY18 declined by 30.9% and 20.5% qoq respectively, to RM430.7m and RM271m.

Maintain SELL With TP of RM4.06

We leave our FY18-20E core EPS forecasts unchanged as there were no major surprises to IOI Corp’s 9MFY18 results but raise our target price to RM4.06 (from RM3.92 previously). This is after rolling over our valuation base year to 2019E and on an unchanged PE multiple of 22x. We maintain our SELL rating on the stock, based on lofty valuations.

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 government policies.

Source: Affin Hwang Research - 17 May 2018