INVESTMENT HIGHLIGHTS

• 1QFY19 earnings within expectations

• Outlook by the Company is neutral

• Earnings estimate maintained

• Maintain NEUTRAL with TP of RM4.45

1QFY19 earnings within expectations. IOI Corporation Berhad (IOICORP) 1QFY19 core net profit (CNP) of RM264m makes up 18%/20% of our/consensus FY19 full year estimate. The result is broadly within our expectation as we expect its downstream segment to register stronger earnings in the remaining quarters in view of low price of materials. In our core net profit calculation, we have excluded: i) net forex loss of RM65.4m, ii) RM8.9m changes in fair value of biological assets and iii) writedown of RM0.8m.

Outlook by the Company is neutral. IOICORP expects the current high palm oil inventories to persist in the near future. However, it also said that “the prevailing trade war between China and US will provide greater opportunity for Malaysia to increase its exports of palm oil to China during the 1QCY2019 when China’s soya bean stocks are drawn down. The current discount of palm oil price over mineral oil price resulting in greater demand for palm biodiesel is also a positive factor which will underpin palm oil price.” All said, the Company expect CPO price to be supported at between RM2,000 and RM2,250 per tonne until the beginning of next year.

Earnings estimate maintained. We maintain our FY19 CNP of RM1.22b. Key factors affecting IOICORP profit are CPO price and the performance of its downstream segment.

Maintain NEUTRAL with TP of RM4.45: Our TP is based on 23.0x PE on FY19 EPS reflecting mean valuation. The share price upside is likely to be capped due to low CPO price currently. However, its share price should be supported by the improvement in its balance sheet post the 70% stake sale in Loders Croklaan.

Source: MIDF Research - 13 Nov 2018