INVESTMENT HIGHLIGHTS

• 1HFY17 earnings is within expectation

• Plantation division PBT surged 37%yoy

• Resource based manufacturing division earnings declined but its earnings contribution is smaller

• Maintain BUY with TP of RM5.30

1HFY17 earnings is within expectation. Excluding forex loss of RM542m, IOI Corporation Berhad (IOICORP) 1HFY17 core net income of RM612m is within consensus and our expectation. Note that it makes up 53% and 45% of consensus and our full year estimate, respectively. Dividend of 4.5 sen (Ex-date: 3-March) is announced and this is higher than last year’s 3.5 sen.

Plantation division PBT surged 37%yoy. Plantation division PBT jumped 37% yoy to RM705m as the impact of higher CPO price (+22% to RM2614/MT) more than offset the lower FFB volume (-11% to 1.70m MT). Against preceding quarter, PBT improved 3% to RM358m thanks to 12% appreciation in CPO price which again more than offset the 5% decline in FFB volume.

Resource based manufacturing division earnings declined but its earnings contribution is smaller. Resource based manufacturing (RBM) division PBT declined 41%yoy to RM211m as the oleochemical subdivision margin is affected by high raw material price of palm kernel. Having said that, we are not overly concerned as RBM division PBT contribution to the Group is only 23% against plantation’s 77% in the 1HFY17.

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 77% of earnings contribution from plantation division.

Source: MIDF Research - 21 Feb 2017