IOIC - BUY - 16 May 2008

IOI Corp - 9MFY08 results largely in-line (Results Note)



Price: RM7.50

Target Price: RM8.45

Recommendation: BUY



· Largely expected. 9MFY08 core net profit of RM1,407.6m (ex-RM226.8m translation gain on US$ denominated borrowings) was largely in-line with expectations, comprising 68% of our earnings estimate of RM2,080.3m. We expect higher CPO prices and seasonally higher FFB production in 4QFY08 to easily makeup for the remainder.

· 9MFY08 net profit of RM1,634.3m was 59% higher YoY due to higher average CPO price realised of RM2,705/MT for 9MFY08 or 64% higher YoY compared to RM1,649/MT for 9MFY07. While 9MFY08 plantation segment operating profit almost doubled YoY to RM1,302.4m, all other segments recorded YoY improvement in earnings contribution.

· Although 3QFY08 FFB production of 848,455MT was 23% lower QoQ, 3QFY08 net profit of RM601.6m was 4% higher QoQ as average CPO price realised of RM2,971/MT was 11% higher QoQ and the resource based manufacturing segment continued to do well due to raw material feedstock costs locked in at lower prices, yielding higher margins.

· Resource-based manufacturing continues to shine. At this segment, 9MFY08 earnings contribution of RM457.4m was 47% higher YoY due to full year contributions from the Pan Century Group that was acquired in 3QFY07 and higher refining and oleo-chemical margins due to raw material feedstock costs locked in at lower prices and increased volumes.

· No revision in earnings estimates. CPO prices are currently above RM3,500/MT, above our FY08 average CPO price assumption of RM2,700/MT. We continue to employ that assumption as circa 50% of FY08 CPO production was sold forward at RM2,500/MT, diluting the positive impact further appreciation in CPO prices would have on net profit. After hitting the seasonal trough in 3QFY08, FFB production should recover in 4QFY08. We believe our FY08 estimates will be met.

· Maintain RM8.45 target price based on an unchanged 20x FY09E PER and BUY call. We believe that downside risk is limited and there are re-rating catalysts in higher CPO prices (current CPO price of RM3,500/MT already higher than FY09 average CPO price assumption of RM3,100/MT) and M&As (US$600m in exchangeable bonds raised on 9 January 2008).