INVESTMENT HIGHLIGHTS

• FY18 earnings below expectations

• FY18 CNP grew 3% yoy to RM1.03b

• Earnings estimate reduced

• Maintain NEUTRAL with lower TP of RM4.45

FY18 earnings below expectations. IOI Corporation Berhad (IOICORP) FY18 core net profit (CNP) of RM1.03b was below expectations at 84% and 86% of our and consensus’ forecast respectively. FFB volume was weaker than expected as it declined -5%yoy in 4QFY18. A final dividend of 4.5 sen was announced and this was within expectation. In our Core Net Profit (CNP) calculation, we excluded: i) RM1.68b gains related to sale of 70% stake in Loders, ii) RM391m forex gain and iii) RM43m other one-off item.

FY18 CNP grew 3% yoy to RM1.03b as earnings from downstream division improved significantly. For its “Resource Based Manufacturing” segment, PBT jumped 107% to RM384m as operating margin improved to 4.9% in FY18 (from 2.3% in FY17). However, plantation division PBT declined due to lower CPO price.

Earnings estimate reduced. We have lowered our FY19 CNP slightly to RM1.22b (from RM1.23b). We have reduced our FFB volume assumption slightly for FY19.

Maintain NEUTRAL with lower TP of RM4.45: Our TP is based on 23.0x PE on FY19 EPS reflecting mean valuation. The decline in Target Price is in line with lower earnings forecast for FY19. Despite this, we believe that IOICORP share price is supported by its strong fundamentals with stable FFB growth and improvement in balance sheet post the 70% stake sale in Loders Croklaan.

Source: MIDF Research - 20 Aug 2018