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Maybank IB Research sees recovery for IOI Corp

KUALA LUMPUR: Maybank Investment Bank Research said IOI Corporation’s 4QFY6/19 core profit after tax and minority interest (PATMI) fell short on lower-than-expected downstream contribution.

It said on Friday overall FY19 core PATMI declined 32% YoY on much weaker upstream earnings.

“For FY20E, we expect EPS to recover (+23% YoY) on higher crude palm oil (CPO) price and output. Following our EPS revisions, our new TP is RM4.53 as we roll forward our valuation base year to CY20 on 30 times price-to-earnings ratio (PER) peg (previously RM4.52 on 29 times FY20 PER), its updated historical five-year mean,” it said.

Maybank Research said IOI Corp, after adjusting for forex loss (RM75mi) and fair value loss on biological assets (RM3mil), the 4Q core net profit of RM125mil (-6% YoY, -33% QoQ) brings FY19 core PATMI to RM738m (-32% YoY) which only met 90%/ 94% of its/ consensus full year forecasts.

As for the sharp decline in FY19’s headline profits of RM631mil (-79% YoY), it was mainly due to a one-off RM1.68bil disposal gain of Loders Croklaan, and a huge forex gain on US$ debt (RM318m), both recorded in FY18.

It also said IOI Corp’s downstream underperformed expectations in 4Q, mainly due to fair value loss on derivative FI (RM32mi;) and weaker-than-expected contribution from associate.

However, for FY19, downstream’s EBIT of RM474mil (-14% YoY) buffered the sharply weaker upstream EBIT of RM401mil (-57% YoY) as the latter was impacted by lower CPO average selling price (ASP) (-21% YoY) and palm kernel (PK) ASP (-38% YoY), and weaker fresh fruit bunches output (-3% YoY).

“By our estimate, IOI’s upstream all-in operating cost of production per CPO tonne rose 15% YoY to RM1,475 a tonne in FY19 on costs pressures and sharply lower PK prices.

“Updating for FY19 results, we shave FY20-21E EPS by 8%/3% respectively largely reflecting lower downstream contributions. We also trimmed our FY20E fresh fruit bunches output growth assumption to +2% (-2-ppts). Our CPO ASP estimate remains unchanged at RM2,275 a tonne for FY20E,” it said.

Source: TheStar