IOI Corp’s 9MFY19 core net profit of RM540.2m came in below expectations. Higher profit from its resource-based manufacturing segment was negated by lower plantation profits due to weaker CPO and PK prices. We cut our FY19-21E core EPS forecasts by 5-10%, mainly to take into account a lower CPO price assumption. We have changed our valuation method to DCF, with a revised TP of RM4.42 (from RM4.47), and maintain our HOLD rating. In our view, IOI Corp’s valuation is fair considering the group’s size, shariah-compliant status and trading liquidity.

9MFY19 Core Net Profit of RM540.2m, Below Expectations

IOI Corp’s 9MFY19 revenue increased marginally by 0.6% yoy to RM5.65bn, mainly due to higher contribution from the resource-based manufacturing division but partially offset by a decline in contribution from the plantation division. IOI Corp’s PBT (which is inclusive of net foreign currency translation loss on foreign currency denominated borrowings and deposits as well as fair value gains on derivative financial instruments from the resource-based manufacturing division) plunged by 46.8% yoy to RM799.6m. The weaker performance was partly attributable to lower profit contribution from the plantation segment (due to lower CPO and PK prices as well as FFB production) but partially offset by higher profit contribution from the resourcebased manufacturing division (due to higher sales volume and margin). For 9MFY19, CPO and PK ASPs were 21% and 38% lower at RM2,039/MT (9MFY18 CPO ASP: RM2,593/MT) and RM1,474/MT (9MFY18 PK ASP: RM2,376/MT) respectively, while CPO production declined by 2.4% yoy to 576k MT. After excluding forex and other one-off items, 9MFY19 core net profit declined by 36.6% yoy to RM540.2m. This came in below our and the street’s expectations, accounting for 66% and 59% of our earlier and consensus FY19 forecasts. The variance to our forecast was partly due to a lower-thanexpected CPO prices.

Weaker Core Net Profit Sequentially

Sequentially, IOI Corp’s 3QFY19 revenue was up slightly to RM1.9bn (+0.6% qoq), while PBT increased by 52.9% qoq to RM365.4m. The higher profit was mainly due to higher contribution from its resource-based manufacturing segment, but partially offset by lower contribution from the plantation segment. However, after excluding forex and other one-off items, 3QFY19 core net profit declined by 9.8% qoq to RM170.8m.

Source: Affin Hwang Research - 23 May 2019