Maintained. Within expectation. Company Result 20 November 2017 IOI Corporation Berhad. Result. Comment

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1 MALAYSIA INVESTMENT RESEARCH REPORT KDN PP13226/04/2014 (032022) JF APEX SECURITIES BERHAD (47680-X) Company Result 20 November 2017 IOI Corporation Berhad Within expectation HOLD Maintained Share Price Target Price RM4.44 RM4.16 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 4.46m 3-m Average Daily Value^ RM20.25m Share Performance 1m 3m 12m Absolute (%) Relative (%-pts) Major Shareholders % Vertical Capacity Sdn Bhd EPF Skim Amanah Saham Bumiputera 4.38 Historical Chart Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Source: Bloomberg Low Zy Jing , ext. 754 zjlow@jfapex.com.my Result Comment IOI Corp registered a net profit of RM362.8m for its 1QFY18. After adjusting for: 1.) Fair value gains on derivative instruments, RM4m; and 2.) Foreign currency translation gains on foreign denominated borrowings of RM68.6m, we derived a core net profit for the period of RM290.2m, up 13.8% qoq but dropped 12.9% yoy. Quarterly performance was underpinned by better production which outweighed retreat in CPO average selling price (ASP). Meanwhile, on yoy basis, the performance was mainly bogged down by higher tax expenses. Within expectations. The 3MFY17 core net profit of RM290.2m meets 27.8% and 24.2% of our and consensus full year net earnings forecast respectively. Plantation segment lifted by higher production which outweighed the slide in CPO ASP on quarterly basis. Plantation segment s 1QFY18 revenue and operation profit increased 5.4% qoq and 15.8% qoq respectively, backed by higher FFB production (+8.8% qoq), outweighing lower CPO ASP (-5.8% qoq). However, on a yearly basis, Plantation segment s 1QFY18 revenue inched up marginally by 1% yoy but operating profit edged down 2.3% yoy. The unfavorable performance was mainly attributed by lower FFB production (-0.4% yoy) coupled with lower Palm kernel ASP (-12.3% yoy) that mitigated improvement in CPO ASP (+7.3% yoy) Resourced-based manufacturing performance lifted by higher sales volume and margin. Resourced-based manufacturing s 1QFY18 revenue surged 13.7% qoq and 27.1% yoy. Similarly, 1QFY18 s operating profit soared 109.2% qoq and 46.4% yoy. This was mainly due to higher margins from the oleochemical and refining sub-segments as well as higher sales volume from the oleochemical subsegment. We believe higher margins due to lower feedstock price as palm kernel price softened. Plantation segment is expected to continue doing well. Looking forward, performance of the plantation segment is underpinned by higher FFB production in view more young palm trees reaching the prime production age. Meanwhile, prevailing strong CPO and palm kernel prices could render better margin. Going forward, we expect oleochemicals subsegment under resource-based manufacturing division to continue recovering thanks to lower and more stable feedstock prices. In addition, specialty oil and Please read carefully the important disclosures at end

2 fats sub-segment is expected to experience higher business volume from multinational customers in view of the impending trans-fat ban in the US in June To recap, the group has entered into a definitive sale and purchase agreement with Bunge Limited (Bunge) to sell a 70% controlling stake in IOI Loders Croklaan (Loders) and its related businesses for a total consideration of Euro 297 million plus US Dollars 595 million, subject to certain adjustments to be determined at the closing of the transaction. In 1QFY18, the discontinued operation businesses recorded a revenue of RM1991.7m (+32.1% yoy) with an operating profit of RM35.7m (-50.1% yoy). The lacklustre performance was attributed by eroded operating margin of 1.8% (-2.9 pts yoy). Nevertheless, discontinued operation businesses revenue and operation profit made up 48.2% of total resourcesbased manufacturing revenue and 21.8% operating profit respectively. On the other hand, on a group level, the discontinued operation businesses operating profit in 1QFY18 contributed 7.6% for the group s total operating profit. Earnings Outlook/Revision We keep our earnings forecasts for FY18 and FY19 unchanged. Valuation & Recommendation Maintain HOLD with an unchanged target price of RM4.16. Our target price is pegged at PE of 25x FY18F EPS. The assigned PER is at 5-year historical mean PE of the Group and in line with valuations 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. 2

3 Figure 1: Quarterly Figures Figure 2: Segmental Operation 3

4 Figure 3: Production figures and Average selling prices FYE 30 June 1QFY18 4QFY17 QoQ % 1QFY17 YoY % 3MFY18 3MFY17 YoY % FFB (MT) 869, , % 872, % 1,208,652 1,700, % CPO (MT) 191, , % 194, % 264, , % Palm Kernel (MT) 42,352 38, % 43, % 59,739 84, % Rubber (dry kg) 136,753 74, % 110, % 187, , % Figure 4: Financial Summary FYE 30June (RMm) F 2019F 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% 13.5% 13.9% 13.5% 13.8% ROA (Core earning) (%) 4.5% 8.1% 7.0% 5.5% 6.0% 5.8% 5.9% Net Gearing (%) 31.3% 57.0% 92.6% 102.2% 75.4% 75.4% 75.4% Dividend Yield (%) 3.6% 3.6% 3.8% 1.8% 2.0% 2.0% 2.0% Operating Margin (%) 14.1% 14.9% 9.9% 11.5% 10.1% 11.8% 12.0% 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: 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) Nursuhaiza binti Hashim (ext 752) Siau Li Shen (ext 753) 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