Actual vs. Expectations The 1Q13 core net profit* of RM345m
was below expectations. It made up only 17% of the consensus forecast of
RM1.99b and our forecast of RM2.05b.
Dividends No dividend was announced as expected.
Key Results Highlights YoY, the 1Q13 core net profit tumbled by
35% to RM345m mainly due to the plantation segment’s EBIT decline of 30% YoY to
RM377m (CPO prices down 7% to RM2941 while FFB prices down 9% to 890k mt). The
segment’s 1Q13 FFB production decline of 9% YoY was below our estimate of flat
FFB production at 973,500 mt. This could be caused by its aging palm oil trees,
which tend to produce below industry average output.
QoQ, the 1Q13 core net profit was flat at RM345m. Better
EBITs were seen at the plantation segment (+31% to RM377m), downstream segment
(+96% to RM66m) and other operations (+15% to RM25m). The plantation segment’s
EBIT improvement was caused by the seasonally higher FFB production (+34% QoQ)
while the downstream’s higher EBIT was due to a better margin.
However, these were neutralised by a lower EBIT from the
property division (-61% to RM117m) in the absence of a one-off fair value gain
of RM165m incurred last quarter.
Outlook Prospect for the plantation division
has turned out to be worse than expected due to declining FFB yields, which
trail the industry’s trend of flattish growth. The structural issue of aging
oil palm tree should cause its earnings to decline unless CPO prices recover
significantly.
Change to Forecasts We have slashed our FY13-14E core net
profits by 10%-11% to RM1.85b-RM1.87b after assuming lower FFB yields of
23.0mt/ha for both years (down 4% from 24.0mt/ha previously).
Rating Downgraded to UNDERPERFORM
Flattish earnings outlook for the next two years should hurt
IOICORP’s share price performance.
Valuation We
have cut our TP to RM4.70 (from RM5.20) based on an unchanged FY13E PER of
16.2x (which is the 3-year average PER).
Risks Worse than expected drop in CPO prices.
Source: Kenanga
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