IOI’s 1H17 results within expectations

KUALA LUMPUR: IOI Corporation Bhd’s (IOI) first half of 2017 (1H17) results were within expectations as analysts observe that 1H earnings have historically made up 54 per cent to 60 per cent of the full-year.

As per a filing on Bursa Malaysia, IOI’s profit for the current year to date ended December 31, 2016 amounted to RM138.6 million, a step up from the RM26.1 million loss recorded the previous year.

IOI noted that excluding the net foreign currency translation loss of RM502 million on foreign currency denominated borrwoings, the underlying profit before tax (PBT) of RM820 million for the second quarter (2Q) of year to date (YTD) financial year 2017 (FY17) was five per cent higher than the underlying PBT of RM780.2 million for 2QYTDFY16.

IOI’s 1H17 core net profit (CNP) at RM693 million made up 61 per cent of consensus’ RM1.13 billion forecast and 63 per cent of the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) RM1.1 billion estimate.

Kenanga Research deemed this broadly within expectations as historically 1H earnings made up 57 per cent of full-year results on average.

The research arm also noted that 2H earnings could be softer on a seasonal weaker 3Q production.

Fresh fruit bunch (FFB) production at 3.36 million metric tonnes (MT) was in line at 51 per cent of Kenanga Research’s forecast.

An interim dividend of 4.5 sen was declared, which was also in line with the research arm’s 9.4 sen full-year estimate.

“Note that our CNP excludes unrealised forex loss on borrowings (RM330 million) and derivatives fair value loss (RM23 million),” it said.

Meanwhile, after excluding forex and other one-off items, IOI’s 1HFY17 core net profit declined by 5.7 per cent year on year (y-o-y) to RM635.2 million, which accounted for 44.4 per cent of Affin Hwang Investment Bank Bhd’s (Affin Hwang) FY17 forecast and 56.3 per cent of consensus.

The research firm deemed this as inline as it expected better performance in 2HFY17.

According to Kenanga Research, management expects crude palm oil (CPO) and palm kernel (PK) prices to remain firm in 3Q17 due to low stocks, which benefits the upstream business, though they expect downstream margin to remain affected by higher prices.

With management actively engaging stakeholders to improve on sustainability credentials, the research arm expected to see further downstream volume recovery in the near-term.

“However, price benefits in 3Q17 could be partly offset by seasonally weaker production,” it said.

Overall, Kenanga Research maintained FY17 to FY18E CNP at RM1.1 billion to RM1.34 billion as the research arm deemed the results broadly in line with expectations.

Kenanga Research reiterated ‘outperform’ on IOI.