IOI Corp’s 9MFY20 core net profit came in below our expectations, lower by 14.5% yoy at RM461.8m, and the variance was mainly attributable to the lower-than-expected contribution from its resource-based manufacturing division. As such, we cut our FY20- 22E core EPS for IOI Corp by 1-14%. We expect the coming quarters will be more unpredictable due to the Covid-19 pandemic and volatile crude-oil prices. After our earnings revisions and rolling forward our valuation horizon, we lift our DCF-derived target price to RM3.20 (from RM2.80). Maintain SELL rating on IOI Corp.

9MFY20 Core Net Profit at RM461.8m, Below Expectations

IOI Corp’s 9MFY20 revenue was slightly higher by 2.1% yoy at RM5.8bn, due to an increase in contributions from the plantation (external revenue only) and resource-based manufacturing divisions. For 9MFY20, IOI Corp’s CPO ASP was higher at RM2,294/MT (9MFY19 CPO ASP: RM2,039/MT), but this was partially offset by lower FFB production at 2.2m MT, down 14% yoy due to the delayed effects of dry weather and the Movement Control Order that affected harvesting. However, IOI Corp’s headline PBT (which is inclusive of net foreign-currency translation loss on foreign-currency denominated borrowings, net inventories written back and fair-value gains on put and call options) declined by 34.9% yoy to RM520.5m. After excluding one-off items, IOI Corp’s 9MFY20 core net profit declined by 14.5% yoy to RM461.8m. This came in below our expectation, accounting for 65.5% of our previous FY20E core earnings, mainly due to the lower contribution from the resource-based manufacturing division.

Weaker Qoq Core Net Profit, Down 59.9% to RM84.1m

Sequentially, IOI Corp’s 3QFY20 revenue was higher at RM2.03bn (+4% qoq), but PBT plunged by 80.5% qoq to RM52.6m. Profits were lower at both its plantation (lower FFB production but partially mitigated by higher CPO selling prices) and resource-based manufacturing divisions (lower contribution from oleochemical and refining sub-segments). The 3QFY20 core net profit, after adjusting for one-off items, was lower by 59.9% qoq to RM84.1m.

Source: Affin Hwang Research - 28 May 2020