kimeng: 27 mar IOICorp (buy)

CPO prices to be sustained at current high levels
IOI expects CPO prices to sustain at current high levels for the next 2-3 years, projecting CPO prices of RM2900-3000 for FY08, RM3300-3600 for FY09 and RM3000-3300 for FY10. We have accordingly increased our CPO price assumptions to RM3000/mt in FY08 and RM3200/mt in FY09, from RM2800 and RM3000 previously. Every RM100/mt rise in CPO price translates to ~RM70m increase in plantation EBIT. Meanwhile, FFB production is projected to grow by 5% in FY08 and 6% in FY09 with another 7,000 ha coming into maturity in the next 2 years. This will
help to offset the estimated cess payment of RM135m in FY08 (RM150/mt based on average CPO prices of RM3000/mt) for the cooking oil stabilisation scheme which was implemented effective 1 July 2007.

Raising EPS forecasts by 4% in FY08 and 7% in FY09
IOI's management is guiding for a significantly better FY08, projecting EBIT (including associates before revaluation reserves) of ~RM3.02bn, some 65% higher than FY07's RM1.83bn. Plantations will be the major contributor to group EBIT (65%), followed by resource-based manufacturing (20%) and property (15%). Consequently, we have raised our EPS forecast by 4% to RM0.357 for FY08 and 7% to RM0.397 for FY09. We are maintaining our Trading BUY recommendation with a revised price target of RM8.30 based on 22x CY2008 EPS forecast of RM0.377.