IOI may see stronger 2H on rising CPO prices

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: IOI Corp Bhd may be seeing a stronger second half of 2019 given the recent strong recovery in CPO prices.

PublicInvest research said in a morning note that despite weak 1HFY19 results announced yesteday, IOI management expects to see favourable results from the upstream plantation segment in the following quarter given the price recovery.

This will offset a seasonal drop in fresh fruit bunch (FFB) production, it said.

"Despite the lower-than-expected results due to a sharp decline in CPO prices during Oct-Dec period, we keep our numbers unchanged as we see a potential catch-up in 2H following the recent strong recovery in CPO prices," said PublicInvest.

It maintained its neutral call on IOI with an unchanged target price of RM4.04.

The research house added that the price of palm oil kernel, which is a raw material for its oleochemical business, has not rebounded, which will bode well for the oleochemical sub-segment business.

Meanwhile, IOI's associate, Bunge Loders Croklaan, is expected to perform well with higher sales volume in the confectionary and nutrition categories.

In an earnings announcement yesterday IOI recorded a core net profit of RM382.7mil for 1HFY19, which came in below PublicInvest's and consensus expectations.

2QFY19 group revenue slipped 6.4% year-on-year to RM1.9bil, as plantation and resource-based manufacturing sales fell. Upstream plantation sales dropped 49.8% y-o-y to RM41.5mil as both FFB production and CPO selling prices slid.

Core earnings in the quarter fell 26.1% y-o-y to RM200.6mil owing to softer earnings in the upstream plantation segment, partly cushiioned by stronger resource-based manufacturing sales.