IOI Corp (Kenanga Research) sell; target price RM4.78

IOI Corporation
Boost from forex gain

  • 3Q10 results boosted by RM231m forex gain, bumping up EBIT sequential growth by 18%. 9M10 revenue of RM9.48b came in at 63% of both our forecast and consensus. 9M10 net profit of RM1.49b was 93% of our forecast and 84% of consensus. Stripping the RM361m forex gain, estimated net profit of RM1.13b was 70% of our normalized forecast."

  • QoQ, group EBIT 18% higher on unrealised forex gain from a stronger RM. Normalised, we estimate EBIT would have been 12% lower on lower plantation division earnings (-12%) due to lower FFB production on seasonality. For the quarter under review, FFB production from its own estates dropped 26% to 757,385 tonnes (2Q10 : 1,024,928 tonnes) but contribution was mitigated by higher CPO price fetched at RM2,480 (2Q10 : RM2,225) or a 11.5% increase. Resource based manufacturing also saw contribution dipped 12% on lower margins achieved while property development contribution was flat (-1.4%).

  • For 9M10, PBT up 106% driven mainly by property development (+124%) and resource based manufacturing (+156%) as well as a boost from currency gains of RM361m versus a loss of RM482m. Plantation saw 38% lower contribution on a combination of lower prices and production (-8.5%), mitigated by higher resource based manufacturing contribution (+156%) and property development (+124%).

  • Immediate outlook should depend on production for the remaining months of the financial year given flattish CPO price. Tweaking our FY10F up 22% on forex gain (RM361m), taking into account higher than expected resource based manufacturing contribution and property development earnings while FY11 is also adjusted higher by 2%. Based on 18x FY11F, new target price of RM4.78 is derived. (RM4.98 previously). Maintain Trading Sell. Risk to our call is potentially higher CPO prices on crimped production and stable demand.
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