IOI Corp’s 9M earnings lifted by one-off gain

by **Cals** Tue 27 May 2014, 00:35

Business & Markets 2014

Written by MIDF Research

Monday, 26 May 2014 10:09

IOI Corp Bhd
(May 23, RM5.05)
Maintained neutral with target price of RM4.68: IOI Corp’s revenue for the third quarter ended March 31 of financial year 2014 (3QFY14) increased marginally by 0.9% year-on-year (y-o-y) to RM2.9 billion. This translates into a weaker 1.9% y-o-y revenue of RM9.1 billion for the nine months to March 31 (9MFY14).

Despite weaker revenue growth, net profit for 9MFY14 surged 74.1% y-o-y to RM3 billion, which was mainly attributed to one-off extraordinary gain of RM1.8 billion arising from the demerger of IOI Corp’s property business in January 2014.

The gain, however, was moderated by foreign exchange (forex) translation loss of RM141.6 million (9MFY13: forex translation gain of RM362.4 million).

Profit from its plantation segment declined 4.1% y-o-y to RM876.6 million due to higher operating costs and higher replanting expenses as a result of the increase in replanting area.

IOI Corp is expected to replant 5,000ha to 8,000ha per annum, which is about 4% to 5% of the group’s total planted area.

Taking into account the extraordinary gain of the demerger activity coupled with the expectation of better fresh fruit bunch (FFB) production moving forward, we revise upwards our FY14 and FY15 earnings forecast by 109% and 3.1% respectively.

Between July 2013 and March 2014, IOI Corp’s FFB production declined by 1.3% y-o-y to 2.68 million tonnes.

We believe the decline in FFB production was partly due to the extreme weather conditions during that period.

For FY15, we expect crude palm oil production to rebound by at least 7%, supported by more mature acreage from the group’s Indonesian operations.

As of June 2013, about 75% of the planted area in Indonesia was immature. Against this backdrop, we are maintaining our “neutral” recommendation on IOI Corp with a revised target price of RM4.68 per share, derived from sum-of-parts valuation. — MIDF Research, May 23

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This article first appeared in The Edge Financial Daily, on May 26, 2014.[/color][/size]