IOI Corp’s FY18 core net profit of RM1.1bn came in within our and street’s expectations, accounting for 97% and 95% of respective FY18 forecasts. The better performance was attributable to higher sales volume as well as higher margins derived from the oleochemical subsegment but partially offset by lower CPO and PK ASPs. We made no changes to our 2019-20E core EPS forecasts and our target price of RM3.90. Maintain our SELL call on IOI Corp.

FY18 Core Net Profit of RM1.1bn, Within Expectations

IOI Corp’s FY18 revenue increased by 2.3% yoy to RM7.4bn. The revenue contribution from the plantation and resource-based manufacturing divisions were increased by 10% and 2.1% yoy to RM258m and RM7.15bn respectively. For FY18, CPO and PK ASPs were lower at RM2,549/MT (FY17 CPO ASP: RM2,766/MT) and RM2,252/MT (FY17 PK ASP: RM2,691/MT), while CPO production increased by 9.7% yoy to 758k MT. IOI Corp’s PBT (which is inclusive of net foreign currency translation gains and fair value gains on derivative financial instruments from the resourcebased manufacturing division) surged by 60% yoy to RM1.6bn. The better performance was partly attributable to higher sales volume as well as higher margins derived from the oleochemical sub-segment. After excluding forex and other one-off items, FY18 core net profit increased by only 0.7% yoy to RM1.08bn. This came in within our and the street’s expectations, accounting for 97% and 95% of our and consensus FY18 forecasts. IOI Corp has also declared an interim DPS of 4.5 sen, bringing total FY18 DPS to 20.5 sen (FY17: 9.5 sen).

Weaker Sequentially on Lower ASPs and Production

Sequentially, IOI Corp’s 4QFY18 revenue and PBT declined to RM1.8bn (- 22% qoq) and RM67m (-84% qoq), respectively. The drop in revenue was mainly due to lower FFB production as well as lower CPO and PK prices. After excluding forex and other one-off items, 4QFY18 core net profit declined by 32.5% qoq to RM182.9m.

Maintain SELL With TP of RM3.90

We leave our FY19-20E core EPS forecasts unchanged as there were no major surprises to IOI Corp’s FY18 results. Hence, our target price on IOI Corp remains at RM3.90, based on an unchanged 22x of CY2019E core EPS. 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) strongerthan-expected FFB and CPO production; and 4) changes in government policies.

Source: Affin Hwang Research - 20 Aug 2018