PublicInvest maintains forecasts on IOI on the back of weaker earnings

IOI has also taken a number of steps to improve sustainability practices, including obtaining third-party verification on its progress towards implementing sustainable policies.

KUALA LUMPUR: PublicInvest research maintained its earnings forecasts on IOI Corp Bhd on the back of the announcement that the planter's core net profit of RM174.9mil was 36.5% weaker year-on-year due to softer earnings contribution from both plantation and resource-based segments.

"Plantation earnings tumbled 53.7% YoY to RM140.6m, attributed to weaker earnings margin. Resource-based manufacturing earnings fell 14.9% YoY to RM109m, dragged by lower sales volume and weaker margins from refining sub-segments. 

"Earnings contributions from its 31.7%-owned Bumitama and 30%-owned Bunge Loders Croklaan jumped 60.5% YoY to RM51.7m," it said.

The research house added that after stripping out net forex translation gains, gains on derivatives and gains on changes in fair value of biological assets, IOI's core net profit came to 21% of its full-year earnings forecasts but missed street expectations by 4%.

PublicInvest maintained its neutral call on IOI with an unchanged target price of RM4.13.

Moving forward, IOI managements expects to see CPO prices trading in the range of RM2,000/mt-2,250/mt until the beginning of 2019 as current palm oil inventory levels are likely to persist in the near term. 

"It also projects weaker plantation sales in the following quarter, due to weaker CPO prices."

IOI also expects the oleo-chemical segment to perform better in the following quarter led by low palm kernel prices and steady demand for fatty acids and esters. The refining sub-segment is also expected to do well due to improved refining and fractionation margin, while Bunge Loders Croklaan is expected to remain strong with good margins in the confectionary segment.