IOI reports lower 3Q net profit due to forex loss

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KUALA LUMPUR (May 27): IOI Corp Bhd posted a sharply lower net profit of RM100,000 for the third quarter ended March 31, 2020 (3QFY20) compared with RM245.8 million a year earlier, due to a foreign currency translation loss.

The group said the RM236.4 million foreign exchange (forex) loss on borrowings and deposits during the quarter compares with a gain of RM57.2 million previously.

Excluding the forex loss, along with a fair value gain on derivative financial instruments from the group's resource-based manufacturing segment of RM87.4 million (3QFY19: RM22.6 million), IOI said its underlying pre-tax profit would be RM201.6 million.

This is 29% lower than the underlying pre-tax profit of RM285.6 million for 3QFY19, the group said in its filing with Bursa Malaysia.

IOI's quarterly revenue, however, was up 7.55% to RM2.03 billion from RM1.89 billion.

The group said its earnings were also affected by lower profits from its resource-based manufacturing segment, which fell 39% to RM119.1 million from RM196.6 million in 3QFY19, mainly due to lower operational contributions from the oleochemical and refining subsegments with lower margins and sales volume.

The share loss from its specialty fats associate, Bunge Loders Croklaan Group BV, mainly due to the provision of doubtful debts as well as marked-to-market losses from commodity derivatives taken up in 3QFY20 also resulted in the lower earnings under the resource-based manufacturing segment.

For the cumulative nine months ended March 31, 2020, IOI said its net profit fell 38.03% to RM 362.6 million, from RM585.1 million in the previous corresponding period, while revenue rose 2.08% to RM5.76 billion from RM5.65 billion.

IOI said that while the Covid-19 pandemic has brought a lot of operating uncertainties and damage, the group's past focus on cost efficiency, strong cash position and the resilient fundamentals of its palm oil business should help the group see through the pandemic crisis relatively unscathed.

"The strong US dollar, though favourable for palm oil export price, is likely to result in significant forex translation loss arising from our US dollar-denominated borrowings," IOI added.

In view of the expected significant increase in oil palm fruit production in 4QFY20, which will counter the effect of a low palm oil price, the financial performance of the plantation segment for 4QFY20 is said to be likely to be similar to that of 3QFY20.

The plantation segment's profit for 3QFY20 was 25% higher at RM165.4 million from RM132.6 million in the previous year.

Under the oleochemical subsegment, IOI Corp is expecting an increase in demand for its fatty acids and glycerin used in personal hygiene products and in plastic-type products such as personal protective equipment due to the disruptions caused by the pandemic lockdowns.

With the relatively low palm kernel oil feedstock price which has enabled product margins to be maintained or improved in some categories, IOI said the financial performance of the oleochemical subsegment is expected to be satisfactory — although the operating conditions have been challenging due to the Movement Control Order imposed.

"Our refinery subsegment, on the other hand, is expected to perform better in the coming quarter due to the healthy refining and fractionation margins.

"However, the specialty fats subsegment, which comprises our associate company Bunge Loders Croklaan, is expected to be affected by the lockdowns in Europe and the US which have disrupted demand and transport logistics for their products in these regions, said IOI.

Shares in IOI Corp closed 10 sen or 2.27% higher at RM4.50 today, valuing the group at RM28.28 billion. Some 6.57 million shares were done today.