Result

• IOI Corp registered a net profit of RM318m for its 4QFY17. After adjusting for: 1.) Fair value loss on derivative instruments, RM44.6m; and 2.) Foreign currency translation gains on foreign denominated borrowings of RM112m, we derived a core net profit of RM255m, surging 60% qoq and 36% yoy.

• Quarterly performance was buoyed by recovery in FFB production despite falling in CPO price by 10% qoq. Meanwhile, on yoy basis, the performance was mainly lifted by recovery in FFB yield coupled with higher average selling prices (ASP) for both CPO.

• Within expectations. The 12MFY17 core net profit of RM1114.5m meets 101.6% and 98.8% of our and consensus full year net earnings forecast respectively.

Comment

• Recovery in FFB Production outweighed slide in CPO price (-10% qoq). Plantation segment posted revenue of RM560m (+1.4% qoq, +21% yoy) in 4QFY17 with operating profit of RM262m (+5.5% qoq, +130.4% yoy). The favourable performance in 4QFY17 on quarterly basis was mainly attributed to FFB recovery (+22% qoq) outweighed falling in CPO price (-10% qoq). Meanwhile, on year-on-year basis, stellar performance was boosted by better FFB production (+11.5% yoy) coupled with higher selling prices in CPO (+12.8% yoy).

• Plantation segment for 12MFY17 buoyed by higher ASP for both CPO and Palm Kernel. Cumulatively, 12MFY17 plantation segment registered revenue and operating profit of RM2341m (+20% yoy) and RM1108m (+42.8% yoy) respectively, backed by higher selling prices in CPO (+23% yoy) and Palm kernel (+54.7% yoy) with a little changed in FFB production (+0.33% yoy).

• Resource-based manufacturing performance lifted by higher sales volume and higher margin from the oleochemicals and refining sub-segments. Resource based manufacturing posted revenue of RM3634m in 4QFY17, edging up 6.5% qoq and 31.7% yoy. Similarly, 4QFY17’s operating profit almost tripled on quarterly basis and increased 23.5% yoy as a result of higher sales volume and higher margins from oleochemicals and refining sub segments.

• Plantation segment is expected to continue delivering. Looking forward, performance of the plantation segment is underpinned by higher FFB production in view more young palm trees reaching the prime production age

despite outlook for palm oil price has softened.

• Resources-based Manufacturing segment for 12MFY17 whittled by higher feedstock cost despite higher revenue. Overall, 12MFY17 resources-based manufacturing segment registered revenue and operating profit of RM13.88b (+20.2% yoy) and RM362m (-22.8% yoy) respectively. This was mainly attributed to lower margins from refining sub-segments as we believe it was bogged down by higher feedstock cost.

• Looking forward, we expect oleochemicals sub segment under resource-based manufacturing division to continue recovering thanks to lower and more stable feedstock prices. In addition, specialty oil and fats sub-segment is expected to experience higher business volume from multinational customers in view of the impending trans-fat ban in the US in June 2018.

Earnings Outlook/Revision

• We tweak down our earnings forecast for FY18F by 15% after lowering margin for resources-based manufacturing segment. Meanwhile, we introduce our earnings forecast for FY19F with a flattish growth of 1.9 % yoy.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM4.16 (previously was RM4.87) following our earnings cut. Our target price is now pegged at PE of 25x FY18F EPS. The assigned PER is at 5-year historical mean PE of the Group and in line with valuations of other big-cap planters. At this junction, we do not foresee any immediate catalyst to drive the Group’s share price with unfavourable risk-reward.

Source: JF Apex Securities Research - 29 Aug 2017