IOI Corporation FY12 slightly below consensus

MARKET PERFORM
Target Price: RM5.25

Period
4Q12 and FY12

Actual vs. Expectations
FY12 core net profit of RM1.83b came in below the consensus expectations but was in line with ours. It made up 92% of the consensus’ FY12 forecast of RM1.99b and 95% of our forecast of RM1.93b.
We believe IOICORP’s FFB yield was below the consensus estimate but was still within ours as we had lowered our FFB yield estimate in our plantation sector downgrade earlier this month.

Dividends
As expected, a 2nd interim single tier dividend of 8.5 sen was declared. Combined with its 1st interim dividend of 7.0 sen, FY12 total dividend is amounted to 15.5 sen, which is 9% lower than FY11’s 17.0 sen.

Key Results Highlights  

• YoY, FY12 core net profit was flat at RM1.83b. A better EBIT in the plantation division (+3% to RM1.55b) was enough to cover lower earnings from the property and downstream divisions.  
• QoQ, 4Q12 core net profit improved 9% to RM439m as FFB volume rose 3% to 663,564 mt. However, the reported net profit was lower (- 27%) as IOICORP incurred a higher unrealized forex loss of RM327m (3Q12: forex gain of RM147m).  
• The improvement of 3% QoQ in 4Q12 FFB volume was below the 36% achieved last year, likely due to the tree stress effect. 

Outlook
Prospect for both its plantation and nonplantation divisions remain challenging. Its plantation division suffered a 4th consecutive year of FFB yield decline to 23.18mt/ha and this trend may continue in FY13E. However, the group’s strong cash flow should enable IOICORP to maintain its stable dividend of > 15.0 sen.

Change to Forecasts  
Maintaining our FY13-14E earnings of RM2.08b- RM2.13b based on FFB productions of 3.44m- 3.42m and CY12-CY13E CPO price assumptions of RM3150-RM3100.

Rating
Maintain MARKET PERFORM
Margin compression in the downstream division and a slowdown in the Singapore property market may keep the earnings upside limited.

Valuation
Maintaining TP of RM5.25 based on FY13E PER of 16.2x (which is a 3-year average PER).

Risks

• A sustained drop in CPO prices.  
• Worse than expected margin for the property and downstream divisions.

Source: Kenaga