IOI Corporation - QoQ surge in plantation EBIT in 1QFY13 Hold

- We are maintaining our HOLD recommendation on IOI Corporation, with a lower RNAV-based fair value of RM5.50/share. IOI’s share price has been partly supported by the company itself and its shareholders. Treasury shares numbered 43mil as at 19 November 2012.

- IOI’s 1QFY13 core net profit was weaker than expected due to declines in CPO prices and palm oil production. The silver lining is that the property division managed to sustain its earnings YoY.

- Interestingly, comparing 1QFY13 against 4QFY12, IOI’s plantation EBIT surged 34.3% to RM377.3mil. 

- Although average CPO price realised eased 8.6% from RM3,219/tonne in 4QFY12 to RM2,941/tonne in 1QFY13, earnings strengthened due to higher palm oil production. IOI’s FFB output in 1QFY12 expanded 34.1% vs. 4QFY12. 

- In spite of the QoQ surge in production, IOI did not face any problems selling its CPO in 1QFY13. This is because most of the CPO is sold to the group’s own refineries. 

- We believe that IOI’s plantation margins were also supported by less application of fertiliser in 1QFY13.  

- Revenue (including inter-segment sales) of the plantation division fell 25% YoY to RM569mil in 1QFY13. EBIT of the plantation division slid 30.2% YoY to RM377.3mil in 1QFY13.   

- Average CPO price realised was RM2,941/tonne in 1QFY13, 6.6% lower than the average price of RM3,149/tonne recorded in 1QFY12.  

- IOI’s average CPO price realised of RM2,941/tonne in 1QFY13 was close to the average price of RM2,852/tonne reported by MPOB (Malaysian Palm Oil Board). 

- EBIT of IOI’s property development division inched  up 1.9% YoY to RM101.9mil in 1QFY13. Share of earnings in the jointly controlled entities (mainly property projects in Singapore) expanded from RM3mil in 1QFY12 to RM9.9mil in 1QFY13. 

- IOI’s manufacturing EBIT climbed 223.9% YoY to RM66.4mil in 1QFY13. Apart from improvements in the margins of the specialty fats segment, the surge in earnings was also due to net fair value gains in forward foreign exchange and commodity forward contracts. We do not know the quantum of the fair value gains. 

Source: AmeSecurities