PETALING JAYA: IOI Corp Bhd’s profitability for the financial year 2019 (FY19) is expected to be affected by lower margins due to weak crude palm oil (CPO) prices.
However, Affin Hwang Capital Research sees earnings for the plantation group to improve in FY20-FY21 on the back of better CPO production and prices.
The research firm said its discounted cashflow-derived 12-month target price for IOI Corp remained unchanged at RM4.42, and maintained its “hold” rating on the stock.
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.
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,” it said in a report.
“This is 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 added.
It highlighted that CPO prices for nine-month period of 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 consumption of palm oil products.
“Stronger exports and consumption will likely be supported by the energy market and food industries.
“We maintain our CPO average selling price assumptions for IOI Corp at RM2,050-RM2,400 per tonne for FY19-FY21,” it said.
Affin Hwang Research said the drop in IOI Corp’s earnings for the first nine months of FY19 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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