IOI Corporation - Recovery in manufacturing HOLD

- We are maintaining our HOLD recommendation on IOI Corporation, with an unchanged RNAV-based fair value of RM5.15/share.

- IOI’s 1HFY13 core net profit was within our expectations and consensus estimates. In spite of this, we have raised IOI’s earnings forecast by 5% to account for the lowerthan-expected effective tax rate and strong recovery in manufacturing earnings.  

- Comparing 1HFY13 against 1HFY12, IOI’s core net profit declined 14% to about RM884.4mil due to lower CPO prices.  

- The small 2.8% YoY increase in IOI’s FFB production in 1HFY13 was not enough to offset the impact of the fall in selling prices. 

- The group realised an average CPO price of RM2,585/tonne in 1HFY13, 16.5% weaker than the average of RM3,094/tonne recorded in 1HFY12. 

- On a quarterly basis, IOI’s plantation profit slid 25.3% to RM281.7mil in 2QFY13. 

- Average CPO price realised shrank 22.1% from RM2,941/tonne in 1QFY13 to RM2,292/tonne in 2QFY13. FFB output expanded 16% QoQ to 1.0mil tonnes in 2QFY13. 

- IOI’s average CPO price of RM2,292/tonne in 2QFY13 was 5.6% higher than MPOB’s (Malaysian Palm Oil Board) spot price of RM2,170/tonne.    

- Manufacturing EBIT recovered 67.9% YoY to RM231.9mil in 1HFY13. EBIT margin of the division inched up from 1.8% in 1HFY12 to 3.7% in 1HFY13.   

- EBIT of the property development division declined 3.8% YoY to RM224mil in 1HFY13. Share of profits in jointly- controlled entities, which undertake property projects in Singapore, strengthened from RM16.3mil in 1HFY12 to RM28.3mil in 1HFY13.  

- In spite of the YoY earnings enhancement in 1HFY13, we reckon that the Singapore government’s recent measures to cool down the property sector would have an impact on IOI’s high-end projects in Sentosa Cove. 

- These measures include an increase in the additional buyer’s stamp duty (ABSD) and imposition of the ABSD on permanent residents buying their first properties in Singapore.    

Source: AmeSecurities