IOI Corp explained the higher PBT was due mainly to net foreign currency translation gain
KUALA LUMPUR: Affin Hwang Capital Research expects IOI Corporation’s FY19E profit to be affected by lower margins due to weak crude palm oil (CPO) prices.
“We think earnings could potentially improve in FY20-21E, on the back of improving CPO production and prices. Our discounted cashflow-derived 12-month TP for IOI Corp is unchanged at RM4.42, and we maintain our Hold rating,” it said on Thursday.
To recap, IOI Corp has been actively looking for plantation estates for acquisition, after selling its 70% equity interest in Loders to Koninklijke Bunge B.V (KBBV).
Affin Hwang Research noted that about RM1bil of the proceeds from the disposal has been earmarked for investment opportunities.
“However, there could potentially be a delay in any acquisitions, partly due to securing a suitable location and size while the high price tags of recent acquisition transactions by other plantation companies have been a deterrent,” it pointed out.
It also highlighted that CPO prices in 9M FY19 were under pressure partly due to ample supply of other edible oils in the market, weak market sentiment as well as ongoing trade tensions between the US and China.
“We expect global palm-oil inventory to gradually fall with higher exports and higher consumption of palm-oil products.
“Stronger exports and consumption will likely be supported by the energy market and food industries. We maintain our CPO ASP assumptions for IOI Corp at RM2,050-2,400/MT for FY19-21E,” it said.
Affin Hwang Research said he drop in IOI Corp’s 9MFY19 earnings was partially cushioned by higher contribution from its resource-based manufacturing division.
“We expect IOI Corp’s resource-based manufacturing division to continue to perform well given the strong demand for its oleochemical and refining products,” it said.
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