Wednesday August 29, 2012
IOI stock remains steady despite disappointing Q4
By CHOONG EN HAN
PETALING JAYA: The share price of plantation heavyweight IOI Corp Bhd closed unchanged at RM5.12 after reaching an intraday high of RM5.14 following the release of a weak set of quarterly earnings on Monday which disappointed investors.
CIMB Research said IOI Corp's final core net profit was 4% below its forecast and 9% below consensus, due mainly to weaker property and manufacturing earnings, while its lower quarterly results were due to lower fresh fruit bunches (FFB) output and lower crude palm oil (CPO). “We expect the group to post stronger earnings in financial year 2013 due to better CPO prices and higher FFB production.
“We also expect better property contributions due to more new launches.
“The outlook for its manufacturing division remains challenging but we are encouraged by the group's expectations that the performance of its oleo division will improve in the coming year,” it said.
On Monday, IOI Corp announced its fourth quarter ended June results, where the group's net profit fell 26.6% to RM401.64mil from RM547.8mil recorded in the previous corresponding quarter.
Revenue also declined by 13.1% to RM3.75bil from RM4.32bil previously.
For its full year, its net profit fell 19.3% to RM1.79bil from RM2.22bil previously, while revenue dipped to RM15.64bil from RM16.15bil.
“The decline was mainly attributed to lower sales from the property development, a decline of 13.2% and resource-based manufacturing division contracted by 1.8%.
“Despite the minor decline in revenue, net profit declined by 19% to RM1.8bil from RM2.22bil previously due mainly to translation loss from foreign currency denominated borrowings of RM327.1mil compared with a gain of RM215.4mil in 2011,” said BIMB Securities Research. Nonetheless, it said the losses were softened by gains amounting to RM124.5mil via the listing of its associate.
Excluding the translation as well as the gain from listing, net income would have only dropped marginally by 0.8%, from RM2.01bil in 2011 to RM1.99nil in 2012, hence is in line with our full year core earnings estimate of RM2.00bil. Despite its weaker financial performance, BIMB Research has maintained IOI Corp as a “buy” with a lower target price of RM5.70, after revising downwards its earnings estimate slightly by 1.7%.
Hong Leong Investment Bank also cautioned that with IOI Corp's exposure in plantation downstream segment, it might face further margin compression from the Indonesian government's move to lower export tax for refined palm products, while the Eurozone's debt crisis may also hurt demand for IOI's downstream palm products, and weak demand sentiment in Singapore property market may impair performance of IOI's property division.