Result

• IOI Corp registered a net profit of RM31.5m in 4QFY18. After adjusting for: 1.) Fair value losses on derivative instruments of RM37.1m; and 2.) Foreign currency translation losses on foreign denominated borrowings of RM169.2m; 3.) Foreign currency gains on foreign denominated deposits of RM60.9m; 4.) losses on disposal of discontinued operations RM44.4m; 5.) Gain on re measurement of share of associate of RM42.8m; and 6.) Recognition of fair value of put-call options of RM20.3m, we derived a core net profit for the period of RM158.2m, which was down 38.7% qoq and 37.9% yoy.

• The weak performance for both QoQ and YoY was bogged down by Plantation segment.

• Cumulatively, 12MFY18 core net profit slid 4.3% yoy to RM1036m, as a result of lackluster performance in plantation segment, which outweighed the gain from resources-based manufacturing (RBM) segment. In addition, the slide in the group’s overall profit also attributable to lower earnings recognition after the partial divestment (disposal) of Loders Croklaan Group B.V.

• Below expectations. 12MFY18 core net profit only meets 91.2% and 87.9% of ours and consensus full year net earnings forecast respectively given lackluster performance in plantation segment.

Comment

• Plantation QoQ performance and YoY performance was fazed by lower average selling price (ASP) coupled with lower Fresh Fruit Branch (FFB) production. Operating profit decreased 47.4% qoq and 53.12% yoy with revenue down 13.8% qoq and 12.1% yoy no thanks to unfavourable ASP and FFB production. Cumulatively, 12MFY18’s operating profit slid 17.9% yoy to RM1010.1m as lower ASP (CPO: RM2593, -5.8% yoy; Palm Kernel: RM2376, -17.4% yoy) outweighed the growth in FFB production (+ 11% yoy).

• Stellar performance for Resourced-based manufacturing (RBM) given better sales volume and margin. Operating profit surged 71.3% qoq and 177.5% yoy to RM122.1m in 4QFY18. Similarly, 12MFY18’s operating profit more than doubled to RM383.7m from 185.5m in FY17. The better performance was contributed by higher sales volume from all the sub-segments as well as higher margins derived from the oleochemical sub-segment.

• Looking forward, the group expects CPO price is well-supported above RM2200 a tonne. Meanwhile, the group expects continued growth in its FFB production in view of higher production from Indonesian plantation as well as the group’s associates company, Bumitama Agri Limited.

• Under resource-based manufacturing segment, the group expects oleochemical sub-segment to perform well with low feedstock cost. However, the uncertainty in refining margins remains the core challenges faced by the Malaysian refineries. Meanwhile, the group envisages improvement in 30%-owned specialty fats associate, Bunge Loders Croklaan given the higher product margins in Europe and the synergies, arising from the integration with the larger Bunge set up.

• Declared second interim single-tier dividend of 4.5 sen per share with ex-date on 4 Sep 2018. As such, a total dividend of 20.5 sen per share (including special dividend of 11.5sen per share) has been declared during FY18, which translates into a dividend yield of 4.5% based on current share price.

Earnings Outlook/Revision

• We lower down our earnings forecast for FY19 by 4.6% in view of lower margin in plantation segment. Also, we introduce our earnings forecast for FY20, which renders a growth 8.6% yoy.

Valuation & Recommendation

• Maintained Hold with a lower target price of RM4.31 (RM4.57 previously) following our earnings cut. We peg our valuation at PE of 25x FY19F EPS. The assigned PER is at 5-year historical mean PE of the Group, which is in line with valuations of other big-cap planters.

Source: JF Apex Securities Research - 20 Aug 2018