IOIC’s FY14 results were below our expectations, due  to  higher  unit costs at its plantation division and weaker manufacturing contributions. We revise down our FY15-16 earnings forecasts by 7.5-9% and maintain our  NEUTRAL  recommendation  as  valuations  remain  fair  at  current levels,  with  no  significant  share  price  catalyst  in  sight.  We  reduce  our SOP-based FV to MYR5.42 (from MYR5.50).  
 
Higher  unit  costs  and  weaker  manufacturing  contributions.  IOI Corp‟s  (IOIC)  FY14  core  net  profit  was  below  our  but  in  line  with consensus  expectations,  coming  in  at  88%  and  97%  of  the  respective FY14 forecasts. The group recorded an exceptional gain of MYR1,882m in FY14, comprising mainly the gain booked from the property demerger of  MYR1,887m  and  derivative  losses.  The  main  discrepancies  were higher-than-expected  production  costs  for  the  plantation  division  (up  an estimated  6%  q-o-q  in  4QFY14),  as  well  as  weaker-than-expected contributions from the manufacturing unit in 4Q (down 47% q-o-q) due to lower sales volume and margins at its refinery sub-segment.   

Net dividend yield of 4% for FY14. IOIC declared a second interim net DPS  of  12  sen,  bringing  FY14  net  DPS  to  20  sen,  or  a  net  payout  of 28%, and a net yield of 4%.    

Core net profit down 14% y-o-y. Its FY14 core net profit declined 14% y-o-y  on  the  back  of  a  6%  dip  in  revenue,  caused  by  the  absence  of contributions  from  the  property  division,  offset  by  higher  manufacturing contributions  (+32%  y-o-y)  as  EBIT  margins  improved  to  6.6%  in  FY14 from  4.8%  in  FY13;  and  better  plantation  contributions  (+9%)  arising from  higher  CPO  output  (+6%),  higher  palm  kernel  (PK)  prices  (+38%) and higher CPO prices (+3%).

Forecast  revision.  After  updating  FY14  results,  raising  our  production cost  estimates  by  5%  and  reducing  our  refining  volume  and  margin assumptions, we lower our FY15-16F earnings forecasts by 7.5-9%.

Maintain  NEUTRAL.  Post-earnings  revision  and  after  incorporating  the group‟s latest net debt and Bumitama Agri‟s (BAL SP, BUY) latest FV of SGD1.66,  we  reduce  our  SOP-based  FV  to  MYR5.42  (from  MYR5.50). We  maintain  our  NEUTRAL  call  on  IOIC,  as  valuations  remain  fair  at current levels, with no significant share price catalyst in sight. 

Figure 4:  Historical quarterly earnings trend

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

IOI  Corp  is  a  large  integrated  palm  oil  producer,  with  palm  oil  plantation  land  in  Malaysia  and  Indonesia.  It  also  has  downstream manufacturing  facilities  like  refineries,  oleochemical  and  specialty  fats  manufacturing  plants.  The  group  is  also  involved  in  property development via IOI Properties, a reputable township developer.

Recommendation Chart

Source: RHB