• Expecting 2QFY17 core net income to be in the range of RM250m-RM280m

• High CPO price to boost plantation division earnings

• Resource based manufacturing division earnings may weaken slightly

• Maintain BUY with TP of RM5.30

Expecting 2QFY17 core net income to be in the range of RM250m-RM280m. IOI Corporation (IOICORP) is expected to release its 2QFY17’s financial result on 20-Feb-2017. We are expecting its Core Net Income (CNI) to be in the range of RM250m to RM280m.

High CPO price to boost plantation division earnings. We expect IOICORP’s plantation division to register higher profit qoq and yoy. Against previous quarter, 2QFY17 earnings improvement is mainly driven by higher CPO price (+13%qoq to RM2935/MT based on MPOB data) which should offset lower FFB production (-5% qoq to 827,580 MT). Against the same quarter last year, better CPO price (+36%yoy to RM2935/MT) is expected to more than offset the 11% decline in FFB volume. In FY16, plantation division is the biggest earnings contributor for IOICORP with operating profit of RM764m (or 56% of the Group’s).

Resource based manufacturing division earnings may weaken slightly. Among the three sub-divisions in resource based manufacturing (RBM) division, the oleochemical subdivision margin is likely to be affected by high price of palm kernel. For specialty oils and fats sub-division, its business should recover after the uplift of suspension from Roundtable on Sustainable Palm Oil (“RSPO”) certification from 8- Aug-2016 onwards. Lastly, we expect refinery subdivision earnings to be flattish. All said, we think that RBM division earnings may weaken slightly but its earnings contribution is smaller as compared to plantation. In FY16, RBM division generated operating profit of RM590m (or 43% of the Group’s).

Maintain BUY with TP of RM5.30. Our earnings estimate for FY17 and FY18 are unchanged. The Target Price is based on unchanged Forward PE of 24.7x (+0.5SD Valuation) on FY17 EPS forecast of 21.46 sen. Maintain BUY as IOICORP is a beneficiary of high CPO price with 56% of earnings contribution from upstream plantation division.

Source: MIDF Research - 14 Feb 2017