IOI Corp Bhd
(Aug 20, RM4.51)
Maintain neutral with a lower target price (TP) of RM4.45: IOI Corp Bhd’s financial year 2018 (FY18) core net profit (CNP) of RM1.03 billion was below expectations at 84% and 86% of our and consensus forecasts respectively. The fresh fruit bunch (FFB) volume was weaker than expected as it declined 5% year-on-year (y-o-y) for the fourth quarter of FY18 ended June 30, 2018. A final dividend of 4.5 sen was announced and this was within expectations.
In our CNP calculation, we excluded RM1.68 billion gains related to the sale of a 70% stake in Loders Croklaan Group, RM391 million foreign exchange gains and RM43 million other one-off items. FY18 CNP grew 3% y-o-y as earnings from the downstream division improved significantly. For the “resource-based manufacturing” segment, profit before tax jumped 107% to RM384 million as the operating margin improved to 4.9% for FY18 (from 2.3% for FY17).
However, the plantation division’s profit before tax declined due to lower crude palm oil prices. We have lowered our FY19 CNP forecast slightly to RM1.22 billion (from RM1.23 billion). We have also reduced our FFB volume assumption slightly for FY19.
Our TP is based on 23 times price-earnings ratio (PER) on FY19 forecast earnings per share reflecting mean valuation. The decline in TP is in line with lower earnings forecasts for FY19. Despite this, we believe that IOI Corp’s share price is supported by its strong fundamentals, with stable FFB growth and an improvement in its balance sheet, post the sale of the 70% stake in Loders Croklaan. — MIDF Research, Aug 20