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 Corporation Bhd
’s nine-month core net profit was below expectations due to lower-than-expected crude palm oil (CPO) price and fresh fruit bunches (FFB) output, says CIMB Equities Research.
“We cut our earnings and target price for the weaker CPO price. Maintain Reduce as the stock appears fully valued given unexciting near-term earnings prospects,” it said. Its target price was RM4 compared with the last traded price of RM4.22.
CIMB Research said IOI Corp’s nine months core net profit (excluding forex loss) of RM612mil was below its expectations, as it accounted for only 71% of its and 67% of Bloomberg consensus’ full year estimates.
Over the past five years, the group’s nine months earnings accounted for 80% of its full-year core net profit.
The weaker-than-expected 3QFY19 core net profit was due mainly to lower-than-expected FFB output (due to change in seasonality of the Malaysia production pattern) and CPO prices as well as higher taxes due to revision of the real property gains tax rate.
As for the third quarter, core net profit fell 21% and 35% on-year, due mainly to lower plantation earnings before interest and tax (Ebit).
However, IOI Corp more than doubled its Ebit from its resource-based manufacturing segment to RM145mil in 3QFY19.
The higher profit was driven by higher sales volumes and refining margin.
On top of this, the group also posted a better share of associate results from Loders Croklaan and its oleo business.
In the nine months, manufacturing Ebit grew 35.4% on-year.
IOI Corp’s reported net profit fell at a higher rate of 81% on-year in 9MFY19, due mainly to net forex translation losses of RM27mil on its foreign-denominated debt and deposits, against a net forex translation gain of RM426.6mil and one-off gain from the sale of its 70% stake in Loders of RM1.81bil a year ago.
As at March 31, 2019, IOI Corp had RM3.76bil (or US$920mil) in US$ debts, accounting for 78.5% of its total borrowings of RM4.79bil.
IOI Corp expects CPO prices to remain weak due to ample supply of soybean and high palm oil stocks. This, coupled with lower harvesting productivity, is expected to dampen Q4 plantation earnings.
“The group expects this to be partially cushioned by better downstream earnings thanks to lower raw material costs. We cut our EPS and sum-of-part based target price to RM4.
"We maintain our Reduce call as the current share price appears fully valued. Key upside risks are higher-than-expected CPO prices and FFB output, as well as potential earnings accretive M&A,” it said.
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