23-08-2007
CREDIT Suisse is maintaining its “outperform” rating on IOI Corp Bhd, which reported record earnings on Tuesday, citing the group as a proxy to relatively strong crude palm oil (CPO) prices. For every RM100 per tonne increase in CPO price, IOI Corp’s FY08 and FY09 net profits would rise by about 3% to 4%, said the research house yesterday. It also raised IOI Corp target price to RM6.12 from RM6.05 (rollover to a new financial year). “Any share weakness, once the share suspension is lifted today, should be seen as a buying opportunity,” it said. IOI Corp Bhd recorded its highest earnings ever with a net profit of RM1.48 billion for the financial year ended June 30, 2007 (FY07), buoyed by record earnings from the palm oil and property business segments. The FY07 net profit of RM1.48 billion was 78.8% above FY06’s net profit of RM829 million. On the earnings, Credit Suisse said net profits were 8% above market consensus forecasts. Earnings before interest and taxation (EBIT) increased by 59% on-year as the plantation, manufacturing and property EBIT grew by 46% on-year, 22% on-year and 20% on-year respectively. Stripping out the revaluation gain of RM160.6 million and the forex items, FY07 pre-tax profits were up 62% on-year. However, CIMB Research downgraded IOI Corp to “underperform” as the latter’s core net profit, that excluded foreign exchange and property revaluation gains, was 6% to 8% below its RM1.34 billion forecast and consensus forecast of RM1.36 billion, as plantation and manufacturing earnings fell short of expectation. “The principal de-rating catalyst is the potential share overhang from the conversion of US$370 million (RM1.3 billion) guaranteed exchangeable bonds as the share price now stands at a 5% premium over the exchange price.” “For exposure to Malaysian planters, we prefer Kuala Lumpur Kepong Bhd and Asiatic Development Bhd, which offer better value,” it said. CIMB Research said IOI Corp’s plantation earnings missed estimates due to a 4% shortfall in fresh fruit bunches output arising from lower yields and higher fertiliser costs, while its manufacturing contribution was lower in 4Q07 arising from weaker-than-expected margins. It said IOI Corp did not announce a final dividend. The seven sen dividend announced earlier was below last year’s 8.7 sen and its forecast of 12 sen. It also adjusted earnings per share (EPS) forecast upwards for IOI Corp’s share cancellation exercise, adding that it expected the plantation company to chalk up 26% EPS growth in FY08, driven by rising CPO price and higher property sales. “Our target price which we continue to base on a forward price over earnings of 18 times, is reduced by 30 sen to RM5.20, mainly for the earnings tweaks and capital repayment of 12 sen. “After outperforming the market by 21% year-to-date, the stock now offers only 5% upside to our target price, well below the 16% upside to our KLCI target. We are downgrading our call from ‘neutral’ to ‘underperform’, ” it said.
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