17 May 2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
` A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
17 May 2010
MARKET DATELINE

IOI Corporation Share Price

Fair Value
:
:
RM5.39
RM6.80
Banking On Manufacturing And Property Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (IOICORP; Code: 1961) Bloomberg: IOI MK

Net Net
FYE Turnover Profit ^ EPS ^ Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
June (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 14,600.5 1,897.7 32.1 (0.1) 16.8 - 15.1 3.8 22.7 37.1 1.5
2010f 14,924.0 1,708.8 26.8 (16.5) 20.1 28.0 17.6 3.7 35.7 35.2 2.2
2011f 16,777.2 2,113.8 33.1 23.7 16.3 32.0 14.4 3.2 20.0 30.8 2.5
2012f 18,831.4 2,233.9 35.0 5.7 15.4 34.0 13.6 2.9 18.8 28.9 2.8
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
^ Normalised

♦ Below expectations. IOIC’s 9MFY06/10 earnings ex-EI was below our RHBRI Vs. Consensus
and consensus expectations, at 61.6-62.5% of our and consensus full-year Above
forecasts (ex-EI). IOIC recorded an EI gain of RM360.9m on translation of In Line
its US$-debt. We believe the main variances were: (1) slightly lower-than- Below

expected average CPO price achieved of RM2,508/tonne in 3QFY10 (versus

Issued Cap (‘m shrs) –ex 6,381.4
spot price of RM2,570); (2) higher-than-expected unallocated expenses; treasury shrs
and (3) higher-than-expected minority interest. No dividend was declared Market Cap(RMm) - basic 34,395.6
in the quarter. Daily Trading Vol (m shs) 12.2
♦ Weaker plantation margins offset by stronger property and 52wk Price Range (RM) 4.15-5.72
manufacturing margins. IOIC’s net profit (ex-EI) fell 5% yoy on the Major Shareholders: (%)

back of a 17% yoy drop in turnover in 9MFY10. The decline was mainly Tan Sri Lee Shin Cheng 40.1
caused by the plantations division, on the back of lower CPO prices EPF 7.2
First State Investments 7.0
achieved (-21% yoy to RM2,330/tonne) and lower FFB produced (-8%
yoy). However, the property development and manufacturing divisions FYE Jun FY10 FY11 FY12
registered a 8.4%-pt and 1.5%-pt yoy rise in EBIT (ex-EI) margins, EPS chg (%) (6.6) (4.5) (5.0)
respectively. Var to Cons (%) (4.4) 3.5 3.0

♦ Star divisions - manufacturing and property. We continue to expect

PE Band Chart
exponential growth from the manufacturing division – due to the impact of
IOIC’s 300,000 tonne refinery and 100,000 tonne specialty fats expansions PER = 22x
in Rotterdam, which are already completed and expected to be launched PER = 17x
PER = 12x
officially in June/July 2010, as well as the 120,000 tonne specialty fats PER = 7x
expansion in Pasir Gudang, Johor, which is expected to be completed at
end CY2010. Property development contribution should also continue to
grow, given IOIC’s line-up of about RM675m worth of property launches in
Malaysia in 2HFY10 and the upcoming official launch of its Singapore
Seascape project, which has already seen close to 80% takeup rate during
Relative Performance To KLCI
its soft launch.
♦ Risks. 1) A reversal in crude oil price trend resulting in reversal of CPO
and other vegetable oils price trend; 2) Weather abnormalities resulting in
an over- or under-supply of vegetable oils; 3) Change in emphasis on
KLCI
implementing global biofuel and trans-fat policies; and 4) A slow global
economic recovery causing lower demand for CPO. IOI Corporation
♦ Forecasts and recommendation. All in, we have lowered our FY10-12
EPS forecasts by 4.5-6.6%, after: (1) lowering our CPO price projection for
FY10 to RM2,350/tonne (from RM2,400); and (2) raising our unallocated
expenses and minority interest projections. Post-earnings revision, our
Hoe Lee Leng
SOP-based target price is reduced slightly to RM6.80 (from RM6.85). We
(603) 92802184
maintain our Outperform recommendation on the stock. hoe.lee.leng@rhb.com.my

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Table 2. IOI Corp Quarterly Results

FYE Jun QoQ YoY YoY
3Q09 2Q10 3Q10 9MFY09 9MFY10 Comments
(RMm) (%) (%) (%)
Plant (ex- 36.7 65.5 87.1 33 138 166.0 258.5 56 Inclusive of inter-segment sales,
intersegment 9MFY10 plantation turnover fell
sales) 27.5% yoy due to lower FFB
produced (-8% yoy) and lower CPO
prices (-21% yoy)

Manuf 2,881.3 2,690.2 2,801.8 4 (3) 10,763.9 8,325.6 (23) Lower due to lower selling prices and
sales volume for the oleochemical
division in line with weak global
economy

Pty devt 119.9 228.7 203.8 (11) 70 382.0 715.8 87 Higher sales of higher-end residential
and commercial properties as
property market picked up in Klang
Valley

Pty Invt 20.3 24.6 25.6 4 26 59.5 73.2 23 Impact from opening of Phase 2 of
IOI Mall at end-FY09

Others 38.2 51.2 29.1 (43) (24) 106.8 109.9 3

Turnover 3,096.4 3,060.2 3,147.3 (7) (18) 11,478.0 9,483.0 (17)

Plant 285.5 319.9 282.0 (12) (1) 1,380.5 851.7 (38) Lower CPO prices and lower FFB yield
filtered down to earnings

Manuf 109.6 145.4 128.6 (12) 17 169.1 432.9 156 Increase due to realised forex losses
and customer defaults recorded in
9MFY09

Pty devt 59.0 111.6 110.0 (1) 87 164.8 369.2 124 Filtered down from higher revenue
and lower construction costs

Pty Invt 12.0 13.8 14.6 6 22 35.6 42.9 20 Filtered down from higher revenue

Others 12.0 7.0 10.6 52 (11) 56.1 28.3 (50)

Unallocated 1.1 (29.7) (43.9) 48 n.m.) (53.8) (72.0) 34

exp

EBIT 479.3 568.0 502.1 (3) 6 1,752.3 1,653.0 (6) Weaker earnings in plantations
division

EBIT (%) 15.5 18.6 16.0 15.3 17.4

EI (281.4) 55.1 231.5 320 (182) (696.3) 360.9 (152) EI gain in 9MFY10 relates to forex
gain on US$-debt, while EI loss in
9MFY09 relates to realised forex loss
on debt of RM124.6m, unrealised
translation loss on USD debt of
RM481.9m, forfeit for Citibank
building RM73.3m and provision for
dimunition in value of development
asset RM16.4m.

Net inc/(exp) (46.5) (40.5) (41.5) 3 (11) (125.0) (130.2) 4

Assoc (10.1) 15.6 17.3 11 (271) 6.5 48.9 658

PBT 141.3 598.2 709.3 19 402 937.5 1,932.6 106 Filtered down from EBIT, EI gain and
higher associate contribution

Tax (83.1) (122.5) (149.0) 22 79 (375.0) (408.4) 9

Eff. Rate (%) 58.8 20.5 21.0 3 (64) 40.0 21.1 Lower mainly due to utilisation of
previously unrecognised tax losses

MI (20.9) (14.5) (11.2) (23) (46) (65.9) (35.6) (46) Lower due to lower profits recorded

Net profit 37.4 461.2 549.0 19 1,369 496.5 1,488.6 200 Filtered down from PBT, lower
effective tax rate and lower MI

Net profit 318.7 406.1 317.5 (22) (0) 1,192.8 1,127.7 (5) Filtered down from EBIT and higher
(ex-EI) interest expense

EPS (sen) 0.6 7.7 8.6 8.4 24.3 191

FD EPS (sen) 0.6 7.3 6.9 8.3 21.6 159

Gross DPS 3.0 7.0 - 6.0 7.0 17

(sen)

Source: Company Date, RHBRI estimates

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Table 3. IOI Corp Plantation Statistics

FYE Jun QoQ YoY YoY
3Q09 2Q10 3Q10 9MFY09 9MFY10 Comments
(RMm) (%) (%) (%)
Av mature ha 139,048 140,031 139,620 (0) 0 139,048 139,620 0

FFB vol (mt) 0.8 1.0 0.8 (26) (2) 2.9 2.7 (7) Lower volume due to weaker
FFB yield

FFB yield 5.6 7.3 5.4 (26) (2) 20.5 18.9 (8) Decline in FFB yield due to dry
(t/ha) weather during the period and
impact of tree stress

CPO vol (t) 162,490 218,309 163,852 (25) 1 1,277,462 1,161,116 (9) In line with decline in FFB
volume

CPO OER (%) 21.3 21.5 21.5 0 1 21.3 21.5 1

Av CPO price 2,091 2,227 2,508 13 20 2,932 2,330 (21) As IOIC is now selling mostly
(RM/t) spot, CPO price achieved in
9MFY10 is largely in line with
MPOB average price

Source: Company data, RHBRI estimates

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Jun (RMm) FY09a FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 14,600.5 14,924.0 16,777.2 18,831.4 CPO Selling Price (RM/t) 2,400 2,600 2,500
Turnover growth (%) (0.4) 2.2 12.4 12.2 PK Selling Price (RM/t) 1,200 1,300 1,400
FFB production Growth (%) (8.0) 6.1 3.3
Operating Profit 2,376.4 2,474.1 2,911.0 3,081.2
Op Profit Margin (%) 16.3 16.6 17.4 16.4

EBITDA 2,594.1 2,724.2 3,180.9 3,370.9

EBITDA margin (%) 17.8 18.3 19.0 17.9

Depreciation (217.8) (250.1) (269.9) (289.7)

Associates 9.9 64.0 144.5 144.2
Net interest costs (170.5) (150.8) (147.4) (152.1)
Exceptional items (914.2) 0.0 0.0 0.0

Pretax Profit 1,550.1 2,387.3 2,908.1 3,073.3

Tax (486.9) (636.0) (750.8) (795.7)
PAT 1,063.2 1,751.3 2,157.3 2,277.6
Minorities (79.7) (42.4) (43.5) (43.7)
Net Profit 983.5 1,708.8 2,113.8 2,233.9
Net Profit (ex-EI) 1,897.7 1,708.8 2,113.8 2,233.9
Source: Company data, RHBRI estimates

Table 5. SOP Calculation

FV
Valuation basis
(RMm)
Plantation earnings 18x CY10 earnings 27,788.2
Manufacturing earnings 12.5x CY10 earnings 7,689.8
Property investment and devt 13.5x CY10 earnings
9,176.0
earnings

Less: Net debt (3QFY10) (1,259.8)

SOP (RMm) 43,394.3

SOP/share (RM) 6.80

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