Period  1Q14

Actual vs. Expectations  Excluding forex loss of RM208m, IOICORP’s 1Q14 core net profit of RM509m is within expectations; at 28% of consensus forecast (RM1.84b) and 29% of ours (RM1.73b).

Dividends  As expected, no dividend was announced.

Key Results Highlights  YoY, 1Q14 core net profit increased 20% to RM509m due to stellar performance from downstream (EBIT +RM145m or 200% to RM219m) and property (EBIT +RM37m or 33% to RM149m) divisions. Collectively, these divisions’ EBIT increased by RM182m which more than offset lower earnings from plantation division, which declined RM145m or 36% to RM256m.

 QoQ, 1Q14 core net profit jumped 74% to RM509m due to strong earnings growth from plantation (EBIT +71% to RM256m).and downstream division (EBIT +76% to RM219m). We believe this is due to seasonally higher FFB production at 876k (+26% QoQ).

Outlook  While the outlook of IOICORP has improved due to improved earnings YoY, it may benefit less from CPO price upside due to its limited FFB output growth.

Forecast  We maintain our FY14E and FY15E core net profits of RM1.73b and RM2.09b, respectively. However, we may raise our forecasts in the range of 2%-4% subject to the finalised stake in Unico Desa takeover, which should be known on 25-Nov-2013.

Rating   Maintain MARKET PERFORM

 Share price should be supported by its impending IOIPROP’s IPO. However, upside appears to be limited due to limited FFB output growth.  

Valuation  Maintain our Target Price of RM5.40 based on an unchanged Fwd. PER of 18.1x on CY14E EPS of 29.8sen.

Risks to Our Call  Lower than expected CPO prices.

 Lower than expected margin for its downstream division.

 Lower than expected earnings from property division.

Source: Kenanga