IOI Corporation - Sharp jump in manufacturing profit QoQ BUY

• Maintain BUY on IOI Corporation, with a higher RNAVbased fair value of RM5.95/share (vs. M5.75/share previously). We have assumed a PE of 18x on IOI’s CY12F plantation earnings in our RNAV calculation. Previously, our PE assumption was 17x.

• In the past seven years, IOI’s PE band (based on historical EPS) ranged from a low of 8x to a high of 33x. Average PE was 20x in the past seven years.

 

• IOI’s 1HFY12 core net profit was within our expectation and consensus estimates. 

• A bright spot was the 275% jump in the EBIT of the manufacturing division from RM33mil in 1QFY12 to RM124.2mil in 2QFY12. On a YoY basis, the manufacturing division recorded a 6% improvement in EBIT to RM157.4mil in 1HFY12, underpinned by an increase in sales volume.

• IOI’s plantation division was the profit driver of the group, accounting for 80% of 1HFY12 pre-tax profit. 

• Plantation turnover (including inter-segment sales) expanded 27.7% YoY to RM1.4bil in 1HFY12 on the back of a recovery in palm oil production and CPO prices. 

• IOI realised an average CPO price of RM3,094/tonne  in 1HFY12, 14.7% higher than the average price of RM2,698/tonne achieved in 1HFY11.  

• IOI’s FFB production improved 10.4% from 1.7mil tonnes in 1HFY11 to 1.9mil tonnes in 1HFY12. 

• We believe that the group would finally record an increase in FFB production in FY12F after chalking up declines of 3% to 8% from FY09 to FY11.

• We estimate IOI’s plantation production cost at RM966/tonne in 1HFY12 versus RM830/tonne in 1HFY11.Going forward, we expect production cost to increase in 2HFY12 due to higher application of fertiliser.

• EBIT of the property development division shrank 11% YoY to RM249.1mil in 1HFY12 due to weak demand and a lower number of property launches. IOI’s share of profits in the property projects in Singapore remained flat at RM16.3mil YoY in 1HFY12.   

Source: AmeSecurities