News  IOI Corporation (IOICORP) has announced a second interim dividend of 12.0 sen. The ex-date and the payment dates are set on 14 and 25 July 2014 respectively.

 Together with the 8.0 sen dividend announced earlier in Feb-2014, FY14 dividend amounted to 20.0 sen giving a decent dividend yield of 3.9%.

Comments  The dividend announcement is a positive surprise on both the timing and the quantum. Timing wise, the dividend came in earlier than expected as IOICORP historically only announces dividend by end-Aug together with its 4Q result.

 The amount of 12.0 sen is also higher than our earlier expectation of 9.0 sen. We believe that IOICORP has increased its payout ratio to 85% (from 78% last year) and this is higher than our earlier expectation of 74%.

Outlook  IOICORP’s upstream division should benefit from higher CPO prices YoY. Its downstream division is also expected to do well due to better economy outlook in US and Europe.

Forecast  We maintain FY14E Core Net Profit (CNP) of RM1.46b. We also maintained our FY15E CNP of RM1.63b. However, we have increased our FY14E dividend assumption to 20.0 sen after imputing higher payout ratio of 85% (from 74% previously). Note that we do not expect IOICORP to announce any more dividends in FY14E after this. As for FY15E, we have increased its dividend estimate to 21.6 sen (from 17.8 sen) after assuming higher payout ratio of 85% (from 70%).

Rating Maintain OUTPERFORM

 Near term catalyst should result from the dividend surprise. In the mid-term, we expect the upcoming FY14E result to be good with Core Net Profit (CNP) growth of 14% to RM1.46b.

Valuation  Maintain our TP of RM5.40 based on Fwd. PE of 21.2x on FY15E EPS of 25.5 sen.

Risks to Our Call

 Lower-than-expected CPO prices.

 Lower-than-expected earnings from downstream division.

Source: Kenanga