IOI Corp's plantation in Johor
KUALA LUMPUR: Affin Hwang Capital Research is retaining its Hold call for heavyweight IOI Corp and lowered its target price from RM4.24 to RM4.15.
It had on Friday cut its FY16E-18E core net profit forecasts for the plantation heavyweight by 11.7%, 2.8% and 1.0% following lower-than-expected FY16 fresh fruit bunches (FFB) production due to the last El Nino.
“We expect the FY16E headline net profit to be cut by net foreign currency translation and derivatives losses as the Ringgit had weakened against the US$ in 4QFY16,” it said.
To recap, IOI submitted a status update of its quarterly progress report on June 27 and is now awaiting an official reply from the Roundtable on Sustainable Palm Oil (RSPO) Complaint Panel on its application to lift the certification suspension.
“The decline in market capitalisation since March seems disproportionate to the potential financial impact. A positive outcome on its application hence is expected to result in a share price rebound, in our view,” it said.
To further enhance the group’s sustainability commitments and credibility, IOI is aiming for RSPO Next, a voluntary programme to exceed current RSPO P&C and which provides for third party audits of actions.
Affin Hwang Research said the rebound in FFB production in 4QFY16 was lower-than-expected while crude palm oil (CPO) average selling price was around 8% higher.
Key downside risks include prolonged RSPO certification suspension and sharp decline in CPO price while key upside risks include a sharp rise in vegetable demand and change in policies leading to higher CPO price.
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