IOICORP (1961) - IOI Corporation - Forex losses drag down 2Q
Target RM4.32 (Stock Rating: REDUCE)
IOI Corp’s 1HFY6/15 core net profit, which excludes forex translation losses, was below expectations (at 42% of our and 41% of consensus’ full-year forecasts). The key culprits were weaker-than-expected CPO prices and lower resource-based manufacturing earnings. We cut our FY15 net profit by 11% for the lower CPO prices and manufacturing earnings. Our SOP-based target price is unchanged, while our call stays at Reduce as we feel IOI’s efficient plantations and downstream assets are already more than priced in. We are also concerned the stock may be removed from the Shariah list at next review.
Key results highlights
IOI Corp’s 2QFY6/15 reported net profit fell 96% yoy to RM19m, mainly due to the RM274m of forex translation losses on its foreign currency-denominated debt. Core net profit (excluding forex translation loss) fell 22% yoy, mainly due to the manufacturing division which posted a 59% yoy drop in earnings mostly because of an unrealised FV loss on its foreign currency forward exchange contracts and weaker oleo contributions. Plantation EBIT fell 5% yoy on the back of a lower ASP for CPO (-10% to RM2,187 per tonne) and FFB production (-2% yoy). On a qoq basis, 2Q core net profit grew 28% due to higher plantation earnings and contributions from associates. The company declared a 4.5 sen interim dividend, broadly in line with our forecast of 8 sen for the year.
Key observations on 2QFY15 results
If not for the unrealised FV loss of RM105.4m on its foreign currency forward exchange contract, IOI’s resource-based manufacturing EBIT would have been 69% higher qoq in 2QFY15 due to higher sales volumes and margins from its oleo division. 2QFY15’s average CPO price achieved of RM2,187 was slightly ahead of the Malaysian Palm Oil Board’s (MPOB) average of RM2,178 per tonne. Lastly, the forex translation loss on its debt of RM274m recorded in 2Q was due to the depreciation of ringgit from RM3.282/US$1 as at 30 Sept 2014 to RM3.4985/US$ as at 31 Dec 2014. Approximately RM7.1bn or 88% of the group’s total borrowings are denominated in USD.
Price outlook and others
IOI said it expects CPO prices to range between RM2,150 and RM2,370 over the next two months. It also expects the volatile ringgit exchange rate to impact its reported earnings due to forex translation effects on its USD borrowings.
Source: CIMB Daybreak - 16 February 2015
Target RM4.32 (Stock Rating: REDUCE)
IOI Corp’s 1HFY6/15 core net profit, which excludes forex translation losses, was below expectations (at 42% of our and 41% of consensus’ full-year forecasts). The key culprits were weaker-than-expected CPO prices and lower resource-based manufacturing earnings. We cut our FY15 net profit by 11% for the lower CPO prices and manufacturing earnings. Our SOP-based target price is unchanged, while our call stays at Reduce as we feel IOI’s efficient plantations and downstream assets are already more than priced in. We are also concerned the stock may be removed from the Shariah list at next review.
Key results highlights
IOI Corp’s 2QFY6/15 reported net profit fell 96% yoy to RM19m, mainly due to the RM274m of forex translation losses on its foreign currency-denominated debt. Core net profit (excluding forex translation loss) fell 22% yoy, mainly due to the manufacturing division which posted a 59% yoy drop in earnings mostly because of an unrealised FV loss on its foreign currency forward exchange contracts and weaker oleo contributions. Plantation EBIT fell 5% yoy on the back of a lower ASP for CPO (-10% to RM2,187 per tonne) and FFB production (-2% yoy). On a qoq basis, 2Q core net profit grew 28% due to higher plantation earnings and contributions from associates. The company declared a 4.5 sen interim dividend, broadly in line with our forecast of 8 sen for the year.
Key observations on 2QFY15 results
If not for the unrealised FV loss of RM105.4m on its foreign currency forward exchange contract, IOI’s resource-based manufacturing EBIT would have been 69% higher qoq in 2QFY15 due to higher sales volumes and margins from its oleo division. 2QFY15’s average CPO price achieved of RM2,187 was slightly ahead of the Malaysian Palm Oil Board’s (MPOB) average of RM2,178 per tonne. Lastly, the forex translation loss on its debt of RM274m recorded in 2Q was due to the depreciation of ringgit from RM3.282/US$1 as at 30 Sept 2014 to RM3.4985/US$ as at 31 Dec 2014. Approximately RM7.1bn or 88% of the group’s total borrowings are denominated in USD.
Price outlook and others
IOI said it expects CPO prices to range between RM2,150 and RM2,370 over the next two months. It also expects the volatile ringgit exchange rate to impact its reported earnings due to forex translation effects on its USD borrowings.
Source: CIMB Daybreak - 16 February 2015
