IOI Corp's plantation in Johor
KUALA LUMPUR: Maybank Investment Bank Research expects IOI Corp Bhd
to post strong earnings recovery in its upcoming second quarter ended Dec 31, 2015 with headline net profit of at least RM520mil.
“The rebound in earnings will be underpinned by reversal in forex losses and stronger downstream contributions. This sector bellwether is the best proxy for an El Nino trade in first half of 2016. Our contrarian ‘buy’ and target price of RM4.97 are unchanged,” Maybank IB said.
“Following first quarter ended Sept 30, 2015’s headline net loss of RM719mil, we expect IOI to return to the black in its upcoming second quarter results with a headline net profit of at least RM520mil.
“Core net profit wise, we expect it to be about RM306mil. The sharp quarter-on-quarter turnaround is largely due to an estimated forex translation gain of RM221mil (1QFY16 loss of RM719mil) on its US dollar debt exposure as the ringgit strengthened against the USD by about 3.5% during the quarter,” the research house said.
Operationally, IOI’s plantation division recorded a weaker second quarter to Dec 31, 2015 fresh fruit bunches (FFB) output of 934,811 tonne mainly due to below-average rainfall experienced in Sabah in first half of 2015.
Nonetheless, higher sequential crude palm oil average selling price (ASP) and palm kernel ASP will likely result in stronger quarter-on-quarter plantation EBIT of RM256mil.
“As for downstream, we expect an EBIT of RM180mil due to the absence of RM203mil fair valuation loss on derivative financial instruments recorded in first quarter of financial year ending June 30, 2016. And it is possible that part of the 1QFY16 losses could be reversed in 2QFY16 to further boost earnings,” Maybank said.
Maybank IB said IOI was the “best proxy” to an El Nino induced CPO price rally in first half 2016 given the high liquid nature of the stock and large market cap.
It added that IOI Corp’s re-inclusion into the Shariah compliant list in end-Nov 2015 had helped generated fresh interest.
“IOI is a ‘buy’ with a target price of RM4.97 based on 30 times FY17 PER, pegged at +1SD above its historical mean,” Maybank said.
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