PETALING JAYA: Although IOI Corp Bhd’s core net profit for the financial year ended June 30, 2013 (FY13) was below consensus estimate, analysts continue to favour the stock for the potential value creation stemming from its property unit demerger.
In CIMB Research’s view, there were short-term catalysts from the property demerger exercise expected to be completed in the fourth quarter of this year.
Sector analyst Ivy Ng said: “We remain positive on the group due to the potential value creation from its proposed property demerger exercise which is expected to rerate the group’s property assets.”
The corporation’s FY13 core net profit of RM1.6bil was in line with expectations, coming in at 1% above its forecast. It was, however, 6% below consensus.
“The slight positive variance against our forecast came from better manufacturing and property earnings which helped to offset higher-than-expected estates costs,” Ng added in a report.
For FY14, Ng projected that the group would report higher core earnings, mainly driven by better CPO prices and stronger property contributions from its domestic and overseas projects.
“This is broadly in line with IOI Corp’s guidance of CPO prices staying at prevailing levels during the next few months, its oleochemical division performing well, and positive prospects for the Malaysian property sector,” she said.
Echoing CIMB’s view, Hwang-DBS Vickers Research said it also “continues to like IOI Corp for its undervalued property segment” as well as other reasons like relatively stable dividend per share against with earnings outlook, and anticipated recovery in CPO prices next calendar year as reasons to like the stock.
For the next few months, Hwang noted, the group expected CPO prices to stay at current levels.
Hwang lowered its forward earnings estimates for IOI Corp, mainly to reflect the lower-than-expected cash balance.
“As at end-June 2013, the group’s ending cash level stood at RM2.97bil.
This was lower than our estimate of RM4.33bil due to lower profits, higher capex and debt repayment,” it said in a note.
Hwang’s FY14 to FY16 forward earnings for IOI Corp were tweaked by -3.4%, -2.6% and -0.4%, although it noted that it had not imputed proceeds from the property segment’s spin off expected to be completed by end-2013.
Alliance Research plantations analyst Arhnue Tan had a different take on CPO price recovery, however. “We only expect a mild recovery in CPO prices towards the year end and view that healthy supplies of palm oil could keep CPO prices supressed.”
As such, Tan also lowered the CPO average selling prices (ASP) for FY14 and FY15 earnings estimates to a more conservative RM2,400 per tonne from RM2,600 per tonne and RM2,700 per tonne previously.
“This lowers our estimates by 6.8% and 9.6% for FY14 and FY15 respectively.”
Group core profits including discontinued operations still showed a 11.4% decline in FY13, dragged by the poor performance of the plantation division due to lower CPO ASP, Tan said.
For the fourth quarter of FY13, the decline in net profit was sharper at -36% because of higher production costs.
“The property division, which has been classified as discontinued operations pending demerger exercise, did better in FY13 with a 10.4% growth in profits. This was driven by property developments in Singapore.”
On the group revenue, Tan pointed out that it was lower in FY13 by 16.4% because of the lower CPO ASP. On a quarter-on-quarter basis, FY13 fourth-quarter revenue was dragged down by the seasonal decline in production which had offset slightly by improved CPO ASP during the quarter.