IOI Corp's Q1 earnings broadly in line

Moody's Investors Service has affirmed the ratings of cash-rich IOI Corporation Bhd and maintained the stable outlook due to its strong liquidity profile with a large cash balance of RM2.3bil as of March 31, 2019.

KUALA LUMPUR: IOI Corporation’s results for the first quarter ended Sept 30, 2017 (Q1, FY18) were broadly in line with CIMB Equities Research and consensus earnings.

It said on Monday core net profit rose 9% on-year, thanks to higher downstream and associates earnings.

“Reported net profit benefitted from a forex gain of RM69mil on its US$ debt in 1QFY18. We are positive on its plan to sell its 70% stake in Loders for RM3.94bil. Maintain our Hold rating and sum-of-parts based target price of RM4.74 a share,” it said.

It said IOI Corp’s 1Q FY18 core net profit (excluding forex translation gain) was broadly in line, accounting for 26% of its full-year forecast and 25% of consensus estimates. 

IOI Corp classified 100%-owned Loders Croklaan’s (Loders) contribution as “discontinuing operations” in the latest results, due to its plans to sell 70% of its stake in Loders to Bunge. 

“We have included Loders’ contributions into our financial numbers in our analysis, as the disposal has not been completed,” it said.

CIMB Research said 1QFY18 core net profit grew 9% on-year as stronger resource-based manufacturing and associates earnings more than offset weaker plantation EBIT. Manufacturing EBIT (ex-FV derivatives gain/loss) grew 232% due to higher profit margins from the oleochemical and refining segments. 

However, this was offset by a weaker plantation performance and contribution from Loders (-87% on-year). Plantation earnings before interest and tax (EBIT) fell 7% due to lower fresh fruit bunches (FFB) output (-0.4% on-year), average selling price (ASP) for palm kernel (-12.3% on-year) and higher operating costs.

IOI Corp posted a stronger 42% on-quarter rise in its core net profit for 1QFY18 due to better performances from all of its key divisions. 

Plantation EBIT grew 19% on-quarter to RM278m in 1Q18 as higher FFB output and palm kernel (PK) prices trumped weaker crude palm oil (CPO) prices. Manufacturing EBIT (ex-FV derivatives gain/loss) grew 62% on-quarter in 1QFY18 due to higher contributions from oleo, thanks to higher sales volumes and margins.

CIMB Research said IOI Corp expects its FFB output to rise as FFB yields from the estates are expected to recover from the El Nino effect. IOI expects the plantation segment to do well in view of this and the prevailing high CPO price. 

As for its manufacturing division, the group expects the oleo segment to do well due to improving global economies, and the specialty oil and fats segment to benefit from the impending trans-fat ban in mid-2018.

“We are positive on the proposed sale of 70% stake in Loders as we think the selling price is attractive. Furthermore, IOI plans to distribute 20% of the proceeds to shareholders as dividends (13 sen a share) and could book a one-off gain of RM2.5bil (or 40 sen a share) from the disposal, which is expected to be completed in the next 12 months.

“We maintain our EPS estimates, sum-of-parts based TP of RM4.74 and Hold rating. We expect IOI Corp’s share price to be supported by its rich assets and potential special dividend of 13 sen a share from the sale of a 70% stake in Loders. Key upside/downside risks are higher/lower CPO prices and FFB output,” it said.