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IOI Corp (Inter-Pacific Research) neutral; target price RM5.59

Inline excluding translation gain

Highlights:

  • NEUTRAL: We reiterate NEUTRAL with our fair value at RM5.59 based on FY11 EPS of RM0.294 and PER of 19.0x. Although their plantation business is expected to stay flat in FY10 and FY11, we expect their manufacturing and property segment to remain buoyant.


  • In line: IOI’s 9MFY10 PBT of RM1.9bn accounted to 78.2% of our FY10 estimate. If we remove the RM360.9mn translation gain, their 9MFY10 PBT will be slightly lower than our expectation accounting about 63.6% of FY10 PBT.


  • Property and manufacturing continue to drive forward: Despite 3QFY10 revenue up 1.6%y/y, operating profit rose by 14.2%y/y to RM545.9mn due to better performance from the property segment as well as resource-based manufacturing activity, up 75.6% y/y and 17.3% y/y respectively. Growth in operating profit from the property segment was due to higher revenue from the increase in sales of property development and property investment following a more positive economic outlook.


  • High selling price, lower production: Plantation segment’s 3QFY10 profit of RM282.0mn was fairly in line with 3QFY09 profit of RM285.5mn. The 1.4% y/y drop in 3QFY10 CPO production to 163.9k MT was cushioned by the higher average CPO selling of RM2480/MT in 3QFY10 in comparison to RM2274/MT in 3QFY09.


  • Q/Q: IOI’s 3QFY10 revenue rose by 2.8%q/q to RM3.15bn although contribution from plantation fell by 0.9%q/q to RM504.7mn as CPO production dropped by 24.9% q/q due to seasonal issue and the 7.5%q/q fall from property segment contribution.


  • Alleviate by translation gain: IOI’s 9MFY10 PBT grew by 106.2%y/y was mainly assisted by the translation gain of RM361.0mn in comparison to a loss of RM482.0 recorded in 9MFY09. When we exclude the translation gain, their 9MFY10 operating profit fell by 4.5% y/y due to lower profits from the plantation division, down 38.3% y/y hurt from lower CPO production (-7.1% y/y to 569.0k MT) and lower CPO average price of RM2330/MT (9MFY09: RM2932/MT).

    Updates:

    1. Plantation: Although their mature area in 3QFY10 fell by 1.1k ha q/q to 139.46k ha, total planted area grew by 585 ha q/q to 154.1k ha bringing the total new planted area to 1.6k ha in 3QFY10. CPO production fell by 24.9% m/m owing to lower FFB yield, 5.46 MT per mature ha for 3QFY10 vis-à-vis 7.34 MT per mature ha in 2QFY10 as a result of low crop season.

    2. Property: IOI expects to achieve revenue of RM1.1bn to RM1.2bn in FY10 which is slightly higher than our expectation of RM1.05bn. Total remaining GDV for IOI property as at 3QFY10 is RM15.6bn for its Malaysia’s property project and another SG$2.9bn in Singapore.
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