HOLD
Price RM4.78
Target Price: RM4.30
YE to June FY07 FY08 FY09F FY10F
FD EPS 22.7 35.0 34.0 34.7
FD PE (x) 21.1 13.7 14.0 13.8
IOI Corporation’s (IOI) FY08 core net profit was in line with our forecast and consensus estimates. Although IOI’s profits from property were not impressive, its profits from plantations surged almost two-fold on the back of an increase in CPO (crude palm oil) price and production. Core property profits declined by 3.6% YoY to RM393.9mil in FY08 because of a rise in construction costs and a change in sales mix i.e. higher sales of residential properties instead of shop offices.
IOI’s plantation operating profit expanded 96.9% YoY to RM1.8bil in FY08. Average CPO price was RM2,865/tonne in FY08. This is 62.9% higher than the average CPO price of RM1,759/tonne realised in FY07.
Although IOI’s total plantation revenue surged 84.2% YoY to RM2.8bil in FY08 - after stripping out inter-segment sales - turnover actually declined 41.2% to RM231.6mil. This indicates that a growing proportion of CPO are being used internally in the downstream segment of refining and specialty fats. Inter-segment sales accounted for nearly 92% of plantation revenue in FY08.
FFB (fresh fruit bunch) yields continued to impress, strengthening 6.8% to 28.5 tonnes/ha in FY08 from 26.7 tonnes/ha in FY07. The expansion in FFB yield contributed to a 6.9% growth in CPO production in FY08.
Operating costs (after depreciation but before interest) rose by nearly RM100/tonne from RM809/tonne in FY07 to RM906/tonne in FY08 because of higher fertiliser costs. We estimate that fertiliser costs increased by more than 30% YoY to RM1,600/ ha to RM1,900/ha currently.
IOI declared a single-tier final dividend of 10 sen/share. This brings total gross dividend for the year to 17 sen/share (FY07: 35 sen (before 5-into-1 share split)), which translates into a yield of 3.6%. The final dividend will be paid on 26 September 2008.
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