Maintained. Company Result 21 February 2017 IOI Corporation. Bolstered by resource-based manufacturing segment. Result. Comment

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1 MALAYSIA INVESTMENT RESEARCH REPORT KDN PP13226/04/2014 (032022) JF APEX SECURITIES BERHAD (47680-X) Company Result 21 February 2017 IOI Corporation Bolstered by resource-based manufacturing segment HOLD Maintained Share Price Target Price RM4.63 RM4.36 Company Description IOI Corporation Berhad cultivates and processes oil palm. Stock Data Bursa / Bloomberg code 1961 / IOI MK Board / Sector Main / Plantation Syariah Compliant status Yes Issued shares (m) Par Value (RM) 0.10 Market cap. (RMm) week price Range RM Beta (against KLCI) m Average Daily Volume 4.40m 3-m Average Daily Value^ RM19.79m Share Performance 1m 3m 12m Absolute (%) Relative (%-pts) Major Shareholders % Vertical Capacity Sdn Bhd EPF Bank J Safra Sarasin LTD Kumpulan Wang Persaraan Annhow Holdings Sdn Bhd Historical Chart Source: Bloomberg Research Team , ext. 754 zjlow@jfapex.com.my Result Comment IOI Corp registered a net profit of RM16m for its 2QFY17. After adjusting for: 1.) Value loss on derivative instruments, RM23.4m; and 2.) Foreign currency translation loss on foreign denominated borrowings of RM330m, we derived core net profit of RM380m, jumped 18.8% qoq and 52.6% yoy. The vibrant performance in 2QFY17 mainly propelled by stellar performance in resource-based manufacturing segment. Meanwhile, 6MFY17 s core net profit soared 25.1% yoy, which mainly attributed by plantation segment that underpinned by higher selling prices in CPO and Palm Kernel. Broadly within expectations. The 6MFY16 core net profit of RM700m met 63.8% and 62.1% of our and consensus fully year forecast respectively. We expect 2H earnings to soften to meet full year forecast. Plantations segment buoyed by jump in CPO and Palm kernel selling prices despite lower FFB production. Plantations segment posted revenue of RM646m (+10.5% qoq, +16% yoy) in 2QFY17 with operating profit of RM361m (+ 4.3% qoq, +12.7% yoy). The favorable performance in 2QFY17 was mainly driven by higher selling price in both CPO (+12.34% qoq, +29.1% yoy) and Palm Kernel (+10.72% qoq, +76.7% yoy) that outweighed a slide in FFB production (-5.2% qoq, % yoy). Cumulatively, plantation segment 6MFY17 s operating profit surged 32.6% yoy, back by higher selling price in CPO (+22.3% yoy) and Palm kernel (+83.24% yoy) despite lower FFB production (-10.6% yoy). Conspicuous performance in resource-based manufacturing bolstered earnings in 2QFY17 further underpinned by higher margin. Resource-based manufacturing posted higher revenue of RM3583m in 2QFY17, increased 10.2% qoq and 22.9% yoy. Similiarly, 2QFY17 s operating profit surged 59.8% qoq and 59.4% yoy in view of higher margin (+1.5pts qoq + 1.1pts yoy) of 5%, which derived from refining sub-segment. However, cumulatively 6MFY17 s operating profit slid 4% yoy to RM273m. This was mainly attributed by lower sales volume and lower margin derived from olechemical sub-segment as a consequences of high palm kernel feedstock cost. Looking forward, we believe the group s performance will be supported by recovery in FFB production coupled with firm CPO and Palm Kernel prices. On the other hand, resource-based manufacturing segment would be affected by higher Palm kernel Please read carefully the important disclosures at end of this publication

2 price. We understand that olechemical sub-segment is facing continued high palm kernel price coupled with the uptrend in utility cost in which the group intends to continuously invest in capital expenditure to improve efficiencies and cost savings. Meanwhile, as for the specialty oils and fats sub-segment, the group saw business performance has improved steadily since the lifting of RSPO certification. Declared interim dividend of 4.5sen per share with ex-date on 3 rd March This translates into a dividend yield of 0.97%. Earnings Outlook/Revision No change to our earnings forecast for FY17 and FY18. Valuation & Recommendation Maintain HOLD with an unchanged target price of RM4.36. Our target price is pegged at PE of 25x FY17F EPS. The assigned PER is at 5-year historical mean PE of the Group and equivalent to valuation of other big-cap planters. At this junction, we do not foresee any immediate catalyst to drive the Group s share price with unfavourable risk-reward. Figure 1: Quarterly Figures Year to 30 June 2QFY17 1QFY17 QoQ 2QFY16 6MFY17 6MFY16 (RMm) (RMm) % chg (RMm) % chg (RMm) (RMm) % chg Revenue % % % Profit before interest and tax % % % Pre-tax Profit /(Loss) % % % Profit after tax % % % Net Profit % % % Core net profit % % % Profit Before Tax Margin (%) 3.5% 5.7% -2.23% 29.5% % 4.6% 3.1% 1.5% Core net profit Margin (%) 10.4% 9.7% 0.6% 8.4% 2.0% 10.1% 9.2% 0.8% 2

3 Figure 2: Segmental Operation Year to 30 June 2QFY17 1QFY17 QoQ 2QFY16 6MFY17 6MFY16 Segment Revenue (RMm) (RMm) % chg (RMm) % chg (RMm) (RMm) % chg Plantations % % % Resource-based Manufacturing % % % Elimination % % % Total Revenue % % % Segment Operating Profit Plantations % % % Resource-based Manufacturing % % % Total Operating Profit % % % Figure 3: Production figures and Average selling prices Year to 30 June 2QFY17 1QFY17 QoQ 2QFY16 6MFY17 6MFY16 % chg % chg % chg Plantation Production FFB (MT) 827, , % 934, % 1,700,577 1,902, % CPO (MT) 184, , % 210, % 378, , % Palm Kernel (MT) 40,414 43, % 49, % 84, , % Rubber (Kg) 133, , % 83, % 244, , % Year to 30 June 2QFY17 1QFY17 QoQ 2QFY16 6MFY17 6MFY16 % chg % chg % chg ASP CPO (MT) 2,768 2, % % 2,614 2, % Palm Kernel (MT) 2,882 2, % % 2,745 1, % 3

4 Figure 4: Financial Summary FYE 30June (RMm) F 2018F Revenue Operating Core Net Profit Core EPS (RM) PE (Core EPS) (x) P/BV (x) EV/EBITDA (x) ROE (Core earning) (%) 7.6% 20.0% 17.8% 12.4% 14.8% 15.1% ROA (Core earning) (%) 4.5% 8.1% 7.0% 5.1% 6.2% 6.9% Net Gearing (%) 31.3% 57.0% 92.6% 102.2% 85.3% 79.0% Dividend Yield (%) 3.6% 3.6% 3.8% 1.8% 2.2% 2.2% Operating Margin (%) 14.1% 14.9% 9.9% 11.5% 14.6% 15.4% 4

5 JF APEX SECURITIES BERHAD CONTACT LIST JF APEX SECURITIES BHD 6 th Floor, Menara Apex Off Jalan Semenyih Bukit Mewah Kajang Selangor Darul Ehsan Malaysia General Line: (603) Facsimile: (603) PJ Office: 15 th Floor, Menara Choy Fook On No. 1B, Jalan Yong Shook Lin Petaling Jaya Selangor Darul Ehsan Malaysia General Line: (603) Facsimile: (603) DEALING TEAM Kong Ming Ming (ext 3237) Shirley Chang (ext 3211) Norisam Bojo (ext 3233) Institutional Dealing Team: Lim Teck Seng Fathul Rahman Buyong (ext 741) Ahmad Mansor (ext 744) Zairul Azman (ext 746) PJ Office: Mervyn Wong (ext 363) Azfar Bin Abdul Aziz (Ext 822) Tan Heng Cheong (Ext 111) RESEARCH TEAM Lee Chung Cheng (ext 758) Lee Cherng Wee (ext 759) Low Zy Jing (ext 754) Nazhatul Shaza Binti Shukor (ext 755) JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK STOCK RECOMMENDATIONS BUY : The stock s total returns* are expected to exceed 10% within the next 12 months. HOLD : The stock s total returns* are expected to be within +10% to 10% within the next 12 months. SELL : The stock s total returns* are expected to be below -10% within the next 12 months. TRADING BUY : The stock s total returns* are expected to exceed 10% within the next 3 months. TRADING SELL : The stock s total returns* are expected to be below -10% within the next 3 months. SECTOR RECOMMENDATIONS OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months. MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to 10% within the next 12 months. UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months. *capital gain + dividend yield JF APEX SECURITIES BERHAD DISCLAIMER Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report. Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. JF Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against JF Apex Securities Berhad. JF Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of JF Apex Securities Berhad. Published & Printed By: JF Apex Securities Berhad (47680-X) (A Participating Organisation of Bursa Malaysia Securities Berhad) 5