Saturday, November 30, 2013

IOI Corporation - Demerger plan to unlock value (CIMB)

IOI Corporation -
Current RM5.46
Target RM5.96
Demerger plan to unlock value

IOI Corp's 1QFY6/14 core net profit (excluding net forex impact) was in line, at 26% of our and 25% of consensus full-year forecasts. Stronger property and manufacturing contributions more than offset the weaker plantation profit to lift 1Q core net profit by 15%. Reported earnings fell 50% yoy due to forex losses on its US$ borrowings. We maintain our earnings forecasts but our SOP-based target price goes up by 1% as we roll forward our valuation to end-2015. We retain our Trading Buy call and see short-term catalyst from the property demerger exercise expected to be completed in 1QCY14.


Reported earnings fell 50% yoy due to forex losses on its US$ borrowings. We maintain our earnings forecasts but our SOP-based target price goes up by 1% as we roll forward our valuation to end-2015. We retain our Trading Buy call and see short-term catalyst from the property demerger exercise expected to be completed in 1QCY14.

A good start to FY14
Resource-based manufacturing earnings rose 214% yoy due to higher sales volumes and better refining and oleochemical profit margins. This more than offset the 37% yoy decline in plantation contribution due to weaker CPO selling prices (-20% yoy to RM2,347 per tonne). We view this positively as it shows that the group's integrated plantation model has been successful in shielding the group's earnings during periods of low CPO prices. Property development EBIT improved 23% yoy due to higher property sales but fell qoq due to absence of a fair value gain on investment properties.

All divisions to do better
We project the group to report better earnings in FY14 mainly due to better CPO prices and stronger property contributions from its domestic and overseas projects. This is broadly in line with the group's guidance for CPO prices to stay at the current levels of RM2,500-2,600 over the next few months, its oleochemical and specialty fat divisions to perform well and property division to be resilient despite the recent RPGT hike due to its significant presence in the mass-market segment.

Property demerger in1Q14
We continue to be positive on the potential value creation from its proposed property demerger exercise which is expected to re-rate the group's property assets. This and potential M&As are the key reasons behind our Trading Buy call.



Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 19/11/13

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