IOI Corp falls 2.6% on 1Q profit, downgrades

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KUALA LUMPUR (Nov 18): IOI Corp Bhd shed as much as 2.6% after the plantation group said it posted a 41% drop in first quarter net profit from a year earlier.

Yesterday, IOI Corp said net profit fell to RM176.7 million in the first quarter ended September 30, 2014 from RM301.8 million in the previous corresponding quarter.

Today, IOI Corp fell as much as 12 sen to RM4.58 before reducing losses. At 12.30pm, the stock settled at RM4.60 with 2.32 million shares changing hands.

The bourse's eighth-largest decliner remained at RM4.60 at 2.47pm with some 2.4 million shares done

For comparison, the FBM KLCI rose 6.09 points or 0.34% to 1,812.57.

CIMB Investment Bank Bhd analyst Ivy Ng said the sharp year-on-year decline in IOI Corp’s downstream resource-based manufacturing earnings before interest and tax was similar to lower refining contribution of its peers.

The lower contribution was due to aggressive capacity expansion locally and abroad, according to Ng.

IOI Corp's peers include Singapore-listed Wilmar International Ltd and Golden Agri-Resources Ltd. Wilmar is a unit under Malaysia-listed PPB Group Bhd.

Meanwhile, RHB Research Institute Sdn Bhd maintained its "neutral" call on IOI Corp with a lower target price of RM4.35. This compares to RM4.50 previously.

In a note today, RHB said it had also cut its earnings forecast for IOI Corp by
15% to 19%. The downgrade took into account lower sales volume and margin forecast for IOI Corp's downstream operations.

"Maintain "neutral", as valuations remain fair at current levels with no significant share price catalyst in sight. In addition, there could be some downside risk, as IOI Corp will be excluded from the Shariah Index come the Nov 2014 review," RHB said.

Maybank Investment Bank Bhd, in its "November Shariah compliance review’ note today, highlighted tha IOI Corp as one of the seven stocks that could be deemed non-Shariah compliant.

Maybank analyst Desmond Ch’ng said IOI Corp might be dropped from the November Shariah list, which was due for release this November 28.

In a separate note, Maybank analyst Ong Chee Ting said the research firm believed
most of the Shariah funds had accumulated IOI Corp shares over the years at relatively decent entry prices.

Given that liquidity is not an issue, Ong said Maybank was therefore concerned over a potential stock overhang in IOI Corp if it was dropped from the Shariah list.