IOI a proxy for El Nino trade, analysts say

KUALA LUMPUR: IOI Corporation Bhd (IOI) has been viewed as a “bellwether” in the plantations sector as it is “the best” proxy to an El Nino induced crude palm oil (CPO) price rally in the first half of 2016 (1H16).

In a recent report, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) highlighted that this was due to IOI’s high liquid nature and large market cap.

It also pointed out that its re-inclusion into the syariah compliant list late last year has helped generated fresh interest on the stock.

Aside from that, the research team said it expected IOI to post strong earnings recovery in its upcoming second quarter of the financial year 2016 (2QFY16) following a severe loss seen last quarter.

“Thereboundinearningswillbe underpinnedbyreversalinforeign exchange (forex) losses and stronger downstream contributions,” it added. It explained, following IOI’s 1QFY16 headline net loss of RM719 million, it expected IOI to return to the black in its upcoming 2Q results with a headline net profit of at least RM520 million (an increase of RM20 million).

“Core net profit wise, we expect it to be approximately RM306 million (a 127 increase quarter-on-quarter and a four per cent increase year-on-year). The sharp quarter-on-quarter (q-o-q) turnaround is largely due to an estimated forex translation gain of RM221 million (1QFY16 saw a loss of RM719 million) on its US dollar debt exposure as the ringgit strengthened against the US dollar by circa 3.5 per cent during the quarter,” Maybank IB Research said.