IOI Corp’s FY19 core net profit of RM694.7m (-31% yoy) came in below our expectations, mainly due to a weaker-than-expected EBITDA margin. Lower profit from the plantation segment was partially offset by higher contribution from the resource-based manufacturing segment. We cut our FY20-21 core EPS forecasts by 6-8%, mainly to take into account lower CPO production and price assumptions. As such, our DCF-derived 12-month target price has been lowered to RM4.34. Maintain HOLD.

FY19 Results Below Expectations

Overall, IOI Corp’s FY19 revenue was flat at RM7.4bn (-0.4% yoy), mainly due to lower contribution from the plantation division but partially offset by an increase in revenue from the resource-based manufacturing division. IOI Corp’s PBT (which is inclusive of the net foreign currency translation loss on foreign currency denominated borrowings and deposits as well as fair value gain on derivative financial instruments from the resource-based manufacturing division) plunged 44% yoy to RM872.6m. The weak earnings performance in FY19 was due to lower profit contribution from the plantation division (due to lower CPO and PK prices as well as FFB production) but this was partially mitigated by higher profit contribution from the resourcebased manufacturing division (due to higher sales volume and margin). For FY19, CPO and PK ASPs were lower at RM2,025/MT (FY18 CPO ASP: RM2,549/MT) and RM1,390/MT (FY18 PK ASP: RM2,252/MT), while FFB production declined by 3.3% yoy to 3.4m MT. After excluding forex and other one-off items, FY19 core net profit declined by 31% yoy to RM694.7m. This came in below our and the street’s expectations, accounting for 94.3% and 85.4% of FY19 forecasts. The variance to our forecast was partly due to a lower-than-expected EBITDA margin given the weak CPO prices. IOI Corp has declared an interim DPS of 4.5 sen, bringing total FY19 DPS to 8 sen (FY18: 20.5 sen).

Weaker Qoq for Both Plantation and Resource-based Manufacturing

Sequentially, IOI Corp’s 4QFY19 revenue declined to RM1.74bn (-8.1% qoq), while PBT dropped by 80% qoq to RM73m. This was due to lower contribution from both the plantation and resource-based manufacturing divisions. After excluding forex and other one-off items, 4QFY19 core net profit declined by 9.5% qoq to RM154.5m.

Source: Affin Hwang Research - 16 Aug 2019