Sunday, August 25, 2013

IOI Corporation : On track for property spin off (DBSV)

IOI Corporation
BUY RM5.30
KLCI : 1,744.85
Price Target : 12-month RM 5.95 (Prev RM 6.15)
On track for property spin off

4QFYJune13 core pretax of RM314m was below expectations; 8.5 sen DPS declared
Ex fair value gains, Property reported weaker than expected operating profit; Plantations and Manufacturing were also below our estimates
FY14F/15F/16F earnings tweaked by -3.4%/-2.6%/-0.4% to account for lower cash level; TP is adjusted to RM5.95 (based on SOP)
BUY call reiterated for 14% potential return (including c.2% dividend yield)


Highlights
4QFY13 core pretax was below expectations. Excluding unallocated fair value gains on derivative financial instruments/ financial assets/liabilities, property revaluation gains, and gains from change in interests in associates, 4QFY13 core pretax was RM314m (vs. our expectation of RM566m). This brought FY13 core pretax to RM2,351m (+16% y-o-y), or 6% below our FY13F pretax. Reported 4QFY13 net profit was RM267.1m (-33% y-o-y; -53% q-o-q).

Manufacturing’s contribution shrank. While Property segment’s operating profit had sequentially expanded by 5% in 4Q13, excluding fair value gains (from Property Investment), the segment’s contribution was not as strong as expected. Manufacturing’s 4Q13 EBIT of RM124.1m (-43% q-o-q; +266% y-o-y) was also dragged by lower refining profits and lower specialty fats volume. Plantations 4Q13 contribution of RM150m (-48% y-o-y, -22% q-o-q) also lagged our forecast, due to lower-than-expected realised ASP.

Lower-than-expected cash level. As at end-Jun13, the group’s ending cash level stood at RM2,969m. This was lower than our estimate of RM4,330m due to lower profits, higher capex and debt repayment. IOI’s rolling cash conversion cycle quickened to 62 days from 74 days in the previous quarter; given lower inventory and receivable days (i.e. reflecting lower CPO prices). Net gearing ratio (excluding Non Controlling Interest) also declined slightly to 32% (from 35% at end of Mar13), due to less short term debts.

Our View
FY14F/15F/16F earnings tweaked by -3.4%/-2.6%/-0.4%. This mainly reflects lower cash balance vs. our previous expectations. Based on the above revisions, we revised the counter’s TP to RM5.95 from RM6.15 (based on SOP), also reflecting the group’s lower ending cash level. We have not imputed proceeds from Property segment’s spin off, which is expected to be completed by end of this calendar year.

Recommendation
BUY rating reiterated for 14% return (including 2% dividend yield). We continue to like IOI for its undervalued property segment, relatively stable DPS/earnings outlook, and anticipated recovery in CPO prices next calendar year. For the next few months, the group expects CPO prices to stay at current levels.




Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 22/08/13

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