This article first appeared in The Edge Financial Daily on May 24, 2019

IOI Corp Bhd
(May 23, RM4.19)
Downgrade to sell with a lower target price of RM3.48: IOI Corp Bhd’s third quarter of financial year 2019 (3QFY19) normalised earnings came in at RM170.8 million, a decline of 21.1% year-on-year (y-o-y). This was mainly attributable to lower crude palm oil (CPO) and palm kernel (PK) prices as well as higher effective tax rate. The average and CPO and PK prices realised for 3QFY19 were lower at RM1,971 per tonne (-20.2% y-o-y) and RM1,312 (-40.4% y-o-y).

Cumulatively, nine-month FY19 (9MFY19) normalised earnings amounted to RM540.2 million. This was mainly due to lower contribution from the plantation segment which was partially mitigated by contribution from the resource-based manufacturing segment. Note that the average CPO and PK prices were RM2,039 per tonne (-21.4% y-o-y) and RM1,474 per tonne (-38% y-o-y) respectively. Meanwhile, fresh fruit bunch production shrunk by 5.8% y-o-y to 2.6 million tonnes. All in, IOI’s 9MFY19 financial performance came in below our and consensus expectations, accounting for 47.4% and 59% of full-year FY19 earnings estimates.

We are adjusting downwards FY19 and FY20 earnings estimates to RM726 million and RM872.9 million, mainly premised on lower CPO and PK prices assumption.

In-line with the expectancy of weaker future earnings performance, we are also reducing our FY19 and FY20 dividend assumptions to nine sen and 10.5 sen respectively. — MIDF Research, May 23