Investment Highlights

• 1QFY18 earnings in line

• Focus on high margin business

• Earnings estimates maintained

• Maintain BUY with TP of RM5.50

1QFY18 earnings in line. IOI Corporation Berhad (IOICORP) core net profit (CNP) of RM289m makes up 24% of consensus and 22% of our FY18 full year estimates. The result is within consensus and our earnings estimates.

Focus on high margin business. In 1Q18, Loders Croklaan (Loders) EBIT margin is 0.6% as compared to upstream margin of 47.1%. Loders’ 1Q18 EBIT is also small at RM11m or 2% of the Group's total EBIT of RM413m. Hence, we reiterate our view that the sale of the 70% stake in Loders should be viewed positively by the market as the divestment is likely to lead to investment in the upstream segment which commands much better margin.

Earnings estimates maintained. We maintain our FY18 CNP of RM1.32b. We also maintain our FY19 CNP of RM1.31b.

Maintain BUY with TP of RM5.50: Our TP is based on 26.3x PE on FY18 EPS reflecting +1.0SD valuation. We continue to like IOICORP for three reasons: i) its sale of low margin business is likely to result in investment in upstream plantation business which command much better margin, ii) special dividend of 13.0 sen in the next 12 months, and iii) substantial improvement in balance sheet after the 70% stake sale in Loders. IOICORP is our Top Pick for the plantation sector.

Source: MIDF Research - 20 Nov 2017