IOI Corp’s 6MFY20 core net profit was stronger at RM378m (+2% yoy) and broadly within our expectation. The higher profit was mainly due to higher contribution from the plantation segment on higher CPO prices given a strong sequential improvement in 2QFY20. We leave our FY20-22E core EPS unchanged as there were no major surprises in the results. We maintain our HOLD rating on the stock with an unchanged DCF-derived TP of RM4.62.

6MFY20 Core Net Profit at RM377.7m, (+2% Yoy), Within Expectations

IOI Corp’s 6MFY20 revenue was marginally lower by 0.7% yoy at RM3.7bn, due to lower contribution from the plantation (external revenue only) and resource-based manufacturing divisions. However, its PBT (inclusive of the net foreign currency translation gain on foreign currency denominated borrowings as well as fair value loss on derivative financial instruments from the resource-based manufacturing division) improved by 7.8% yoy to RM467.9m, mainly attributable to better performance from the plantation division due to the higher CPO ASP. For 6MFY20, IOI Corp’s CPO ASP was higher at RM2,128/MT (6MFY19 CPO ASP: RM2,081/MT), but this was partially offset by lower CPO production at 365.6k MT, down 3% yoy. Excluding one-off items, IOI Corp’s 6MFY20 core net profit increased by 2.2% yoy to RM377.7m. This came in largely within our expectation, accounting for 44.2% of our FY20E core earnings, as we expect the 2HFY20 performance to be better on higher CPO prices.

Stronger Sequentially, Core Net Profit Up 24.8% to RM209.7m

IOI Corp’s 2QFY20 revenue increased to RM1.96bn (+10.1% qoq), while PBT increased by 35.6% qoq to RM209.7m. This is mainly attributable to higher contribution from the plantation segment given the higher CPO and PK ASPs, up 11.5% and 23.7% qoq, respectively, to RM2,246/MT and RM1,393/MT. The 2QFY20 core net profit, after adjusting for one-off items, was higher by 24.8% qoq to RM209.7m.

No Changes to Forecasts, Maintain HOLD and TP of RM4.62

We make no changes to our FY20-22 core EPS forecasts as there were no major surprises. We expect FY20E to be a better year on the back of higher CPO prices. We maintain our DCF-derived TP for IOI Corp at RM4.62 and our HOLD rating.

Key Risks

Key upside/downside risks include: 1) a stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 19 Feb 2020