Affin says IOI should see its average CPO price improve to between RM2,500 and RM2,700 per tonne in the remainder of fiscal 2013. - AFP

PETALING JAYA: While the first half of IOI Corp Bhd's financial year ending June 30, 2013 missed estimates by a tad, the company's second half is expected to be anchored by firmer crude palm oil (CPO) prices, its downstream operations and robust property sales, analysts said.

Its earnings in the three months to December declined 8% year-on-year and 12% compared with the first quarter, due to the lower contribution from its plantation segment, which makes up close to half of its total income.

On the bright side, IOI's downstream business recorded higher sales and margins while fresh fruit bunch (FFB) production rose 14.6% on year and 16.3% on quarter.

To recap, IOI said on Thursday its second quarter profit fell 8% to RM531mil from RM577.7mil in the same period a year ago while revenue dipped 13.7% to RM3.59bil from RM4.17bil.

For the six months to December, the group posted a 35.8% increase in net profit to RM1.14bil from RM835.8mil. Revenue fell 16.2% to RM6.9bil from RM8.3bil a year earlier.

This was largely anticipated on the back of the high inventory of palm oil stocks since August of above two million tonnes that curbed CPO prices, hurting margins for local planters.

In the second quarter, IOI realised an average CPO price of RM2,292 per tonne against RM3,032 in the same period in 2011 and RM2,585 in the first half against RM3,094.

The lower CPO prices reduced its plantation earnings before interest and taxes margin to 52% in the second quarter from 65% previously to RM282mil.

According to a note from Affin Investment Bank, IOI should see its average CPO price improve to between RM2,500 and RM2,700 per tonne in the remainder of fiscal 2013.

The brokerage is also expecting from IOI an FFB production of some 1.6 million tonnes, sustained good performance in its downstream segment and strong property billings and profit on target sales of RM1.1bil.

For Maybank Investment Bank, IOI's downstream, which includes its oleochemicals, specialty fats, and refining business, was a “star performer”. Margins expanded in the second quarter to 5.2% on cheaper raw material input costs and improved selling prices of specialty fats products.

“We expect margins to remain healthy in the second half on rising palm oil product prices while the new CPO export tax structure in 2013 should benefit downstream players,” Maybank said.

Kenanga Research, however, noted that in the short term, low CPO prices should lead to a 19% drop in earnings in fiscal 2013.

“Even for the longer term, the structural issue of its aging trees should keep its earnings growth limited,” Kenanga said.

On the other hand, PublicInvest Research believes that the recovery in FFB production and improved contribution from the downstream operations will “help cushion the downside risks” of persistently weak palm oil prices.