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) 6287.96 Par Value (RM) 0.10 Market cap. (RMm) 29113.25 52-week price Range RM4.07 5.04 Beta (against KLCI) 1.08 3-m Average Daily Volume 4.40m 3-m Average Daily Value^ RM19.79m Share Performance 1m 3m 12m Absolute (%) 2.9 5.2-2.5 Relative (%-pts) 0.0 0.9-4.7 Major Shareholders % Vertical Capacity Sdn Bhd 47.10 EPF Bank J Safra Sarasin LTD 6.76 4.33 Kumpulan Wang Persaraan Annhow Holdings Sdn Bhd 3.59 1.96 Historical Chart 5.10 4.90 4.70 4.50 4.30 4.10 3.90 Source: Bloomberg Research Team 03-87361118, 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, -11.47% 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
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 2017. 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 3666 3291 11.4% 2969 23.5% 6957 6055.2 14.9% Profit before interest and tax 470 389 20.6% 671-30.0% 858.9 843.6 1.8% Pre-tax Profit /(Loss) 129 189-31.9% 877-85.3% 318 185.9 71.1% Profit after tax 27 102-73.8% 737-96.4% 128.2-5 -2664.0% Net Profit 16 105-85.1% 725-97.8% 120.4-19.6-714.3% Core net profit 380 320 18.8% 249 52.6% 700.0 559.6 25.1% Profit Before Tax Margin (%) 3.5% 5.7% -2.23% 29.5% -26.01% 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
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 646 584 10.5% 556 16.0% 1230 1052 16.9% Resource-based Manufacturing 3583 3251 10.2% 2915 22.9% 6834 5968.1 14.5% Elimination -566-547 3.4% -506 11.7% -1113-972 14.5% Total Revenue 3663 3288 11.4% 2965.2 23.5% 6951 6049 14.9% Segment Operating Profit Plantations 361 346 4.3% 320 12.7% 674 508 32.6% Resource-based Manufacturing 179 112 59.8% 112 59.4% 273 284-4.0% Total Operating Profit 539.9 458.2 17.8% 432.5 24.8% 947 793 19.5% 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) 827,580 872,997-5.20% 934,811-11.47% 1,700,577 1,902,217-10.60% CPO (MT) 184,597 194,338-5.01% 210,333-12.24% 378,935 427,690-11.40% Palm Kernel (MT) 40,414 43,815-7.76% 49,180-17.82% 84,229 100,956-16.57% Rubber (Kg) 133,848 110,831 20.77% 83,230 60.82% 244,679 109,673 123.10% Year to 30 June 2QFY17 1QFY17 QoQ 2QFY16 6MFY17 6MFY16 % chg % chg % chg ASP CPO (MT) 2,768 2,464 12.34% 2144 29.1% 2,614 2,128 22.84% Palm Kernel (MT) 2,882 2,603 10.72% 1631 76.7% 2,745 1,490 84.23% 3
Figure 4: Financial Summary FYE 30June (RMm) 2013 2014 2015 2016 2017F 2018F Revenue 12199 11911 11542 11739 11311 11847 Operating 1620 1916 1184 1358 1652 1830 Core Net Profit 1065 1249 936 906 1098 1227 Core EPS (RM) 0.1692 0.1984 0.1486 0.1440 0.1744 0.1949 PE (Core EPS) (x) 26.0 23.5 29.8 30.8 26.4 23.6 P/BV (x) 2.1 2.2 4.9 3.8 3.9 3.6 EV/EBITDA (x) 17.1 15.4 20.2 19.5 16.0 15.8 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
JF APEX SECURITIES BERHAD CONTACT LIST JF APEX SECURITIES BHD 6 th Floor, Menara Apex Off Jalan Semenyih Bukit Mewah 43000 Kajang Selangor Darul Ehsan Malaysia General Line: (603) 8736 1118 Facsimile: (603) 8737 4532 PJ Office: 15 th Floor, Menara Choy Fook On No. 1B, Jalan Yong Shook Lin 46050 Petaling Jaya Selangor Darul Ehsan Malaysia General Line: (603) 7620 1118 Facsimile: (603) 7620 6388 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