Results within expectations. IOI Corp's FY12 core earnings came in at RM1,919.3m, which was in line with our forecast as well as consensus'. Core earnings were down by 8.2% compared to FY11, with its downstream segment being the main drag while the plantation segment managed to eke out a 3.4% improvement. The company has declared an 8.5 sen final dividend, which brings its full year dividend to 15.5 sen, translating into a yield of 3.0%.

Plantation suffers from Sabah drag. On a q-o-q basis, IOI Corp's FFB production only grew by 3.0% to 664.69k tonnes. In June 2011 quarter, production surged by 36.0% q-o-q on seasonal upswing. The flattish q-o-q performance was due to poor Sabah production, which affected all plantation players with estates in Sabah (IJM Plant, a Sabah pure play, experienced a 10.4% q-o-q decline in FFB production).

Downstream still suffering. IOI's downstream performance continued to suffer in the June quarter, with segment EBIT declining by 59.9% q-o-q to RM33.9m. Margin depressed to just 1.0% in the June quarter. For the whole FY12, segment EBIT fell by 36.6%. There could be some improvement in the segment going forward as the spread between refined and crude palm oil has turned positive. Furthermore, with Sabah refiners imposing further discount from September onwards, some improvement in margin should be expected, although we believe the impact may be marginal.

Maintaining forecast. We are keeping our forecast for FY13 at RM2,074.1m and FY14 at RM2,211.2m. The stock trades at 15.9x and 14.9x forwards earnings. We believe IOI Corp is at best fairly valued at the current levels.