Journey to Wealth
IOI Corporation - Sharp jump in manufacturing profit QoQ BUY
' Maintain BUY on IOI Corporation, with a higher RNAVbasedfair value of RM5.95/share (vs. M5.75/share previously). We have assumed a PEof 18x on IOI's CY12F plantation earnings in our RNAV calculation. Previously, ourPE assumption was 17x.
' In the past seven years, IOI's PE band (based onhistorical EPS) ranged from a low of 8x to a high of 33x. Average PE was 20x inthe past seven years.
' IOI's 1HFY12 core net profit was within our expectation andconsensus estimates.
' A bright spot was the 275% jump in the EBIT of the manufacturingdivision from RM33mil in 1QFY12 to RM124.2mil in 2QFY12. On a YoY basis, themanufacturing division recorded a 6% improvement in EBIT to RM157.4mil in1HFY12, underpinned by an increase in sales volume.
' IOI's plantation division was the profit driver of thegroup, accounting for 80% of 1HFY12 pre-tax profit.
' Plantation turnover (including inter-segment sales) expanded27.7% YoY to RM1.4bil in 1HFY12 on the back of a recovery in palm oilproduction and CPO prices.
' IOI realised an average CPO price of RM3,094/tonne in 1HFY12, 14.7% higher than the averageprice of RM2,698/tonne achieved in 1HFY11.
' IOI's FFB production improved 10.4% from 1.7mil tonnes in 1HFY11to 1.9mil tonnes in 1HFY12.
' We believe that the group would finally record an increasein FFB production in FY12F after chalking up declines of 3% to 8% from FY09 toFY11.
' We estimate IOI's plantation production cost at RM966/tonnein 1HFY12 versus RM830/tonne in 1HFY11.Going forward, we expect production costto increase in 2HFY12 due to higher application of fertiliser.
' EBIT of the property development division shrank 11% YoYto RM249.1mil in 1HFY12 due to weak demand and a lower number of propertylaunches. IOI's share of profits in the property projects in Singapore remainedflat at RM16.3mil YoY in 1HFY12.
Source: AmeSecurities
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